Investing activities include the purchase and sale of assets and other business investments within a specific reporting period. Businesses usually report them on cash flow statements. It gives an insight into the total investment gains and losses during a specific reporting period. It gives the complete details of the earnings and expenditure of a business over a certain accounting period.
There are three basic financial statements that are:
- The balance sheet
- Income statement
- Cash flow statement
The balance sheet provides an overview of a company’s assets and liabilities.
This article covers:
- What is cash flow from investing activities?
- What are examples of investing activities?
- Why are investing activities important?
What Is Cash Flow From Investing Activities?
It refers to the line items on the business cash flow statement. It is one of the most important financial statements of a business. It includes the gains and losses of the business’s investment and the resulting changes during the company’s fixed assets’ purchase or sale of equipment during the reporting period.
What are fixed assets?
Fixed assets are the business property or equipment that it uses to generate revenues. Unlike current assets, you can not convert fixed assets into cash within a year.
Examples of fixed assets are:
What Are Examples Of Investing Activities?
When a business makes any deal of buying or selling a product or service, it may face a profit or loss. Investing activities show some of the common accounting transactions in the statement of cash flow of the business; these are:
The purchase of investment:
If a company spends on purchasing an investment in stock, bonds, or any other type of investment, its cash flow decreases.
Proceeds from the sale of investments:
It means that a company is selling investments that results in the positive cash flow from investing activity. The cash flow will increase even if a company is selling investments at a low price than its actual purchasing amount.
The purchase of fixed assets:
If a company purchases fixed assets, it will always purchase them on credit rather than cash payment. It shows the gradual decrease in cash flow because a company is paying some amount towards the credit purchase every month.
Proceeds from the sale of fixed assets:
If a company sells its fixed assets (vehicle, building, machinery, property), it will increase the cash flow from investing activity.
Investing activities include cash activities related to non-current assets.
Why Are Investing Activities Important?
Investing activities are important for small businesses. It gives insight into a company’s financial status by showing the cash flow statement’s line items. It helps the owners to estimate the future revenues of a business.
Negative cash flow from investing activities indicates that the business is investing in capital assets, which will help a business earn some good revenues in the future.