Analysis Intermediate: Understanding the Statement of Cash Flow

Introduction to Understanding the Statement of Cash Flow Importance of the Statement of Cash Flow The Statement of Cash Flow vs. the Income Statement Format of the Statement of Cash Flow The Statement of Cash Flow: Operating Activities The Statement of Cash Flow: Investing Activities The Statement of Cash Flow: Financing Activities Summary of Understanding the Statement of Cash Flow
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The Statement of Cash Flow: Investing Activities

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The Statement of Cash Flow: Investing Activities

How should I use extra cash? This is a good decision to have to make. When companies spend cash on things like facilities, equipment, or business acquisitions, these expenditures are included as investment activities. A firm often will spend large sums of money on long-term assets to help it stay competitive. It may choose to acquire other businesses. It may also choose to lend its extra cash. All of these transactions are included under the investing activities section of the statement of cash flow:

The Statement of Cash Flow

Let’s look at some of the most common investing activities:

Cash Inflows

  • Sale of property, plants, and equipment
  • Sale of securities (other companies’ stocks and bonds)
  • Receipt of loan repayments

Cash Outflows

  • Purchase of property, plants, and equipment
  • Purchase of securities (other companies’ stocks and bonds)
  • Making loans to others