Understanding cash flows from investing activities

Understanding cash flows from investing activities

15-03-2021 in Finance

Investing activity is also the gap between the income statement and the balance sheet of a business report; while the income statement gives the information in the revenue and expenses made during a period, the balance sheet gives a review on the assets, liability and equity at a specific time.

What is Cash flow?

Cash flow or financial flow is the difference, which can either be an increase or a decrease, in the money a business has. This is also used as the amount of money gotten and spent over a certain period of time.

Inflow from cash is obtained from three different aspects of a business and they are categorized accordingly: cash flow from operation, cash flow from finance, and cash flows from investing activities.

What is Cash flow from investing activities and how can it be calculated?

Investing activity is about the purchase, sale and profits gotten from long-term expenses. The cash flow from investing activities are basically the difference in these financing activities. It includes the gains and losses during a period of time, and is recorded in the cash flow statements either in positives or negatives.

How to start Investing?

Investing activities in the form of buying or selling are a two-way street. These ways are fixed so that it is either on one or the other, i.e profit-and-loss system. It could be by buying an investment or selling one, it must yield either a profit or a loss. Some of the most common transactions found in the investment activities of companies include;

Acquiring investments:

if financial companies such as WorldRemit should acquire an investment, which can be stocks, bonds or any other form of investment. The amount used in acquiring that investment will lead to a decrease in the cash inflow of the company, while it increases the outflows. This will be marked as negative.

Selling investments:

when a business sells off an investment, it results in the increase of cash inflow and decreases the cash outflow. Regardless of the fact that the investment is sold at a lower price than it was bought, it will still be marked as positive. This indicates that positive numbers in an inflow doesn't necessarily amount to profit.

Acquiring fixed assets:

assets like building or land properties, furniture or vehicles are fixed. Usually, they are not bought with cash at once, but on credit. This means that the payment spans over a period of time, but any time any amount of payment is made towards it's remittance, it is recorded in the negative, because it's an outflow of cash.

Selling fixed assets:

when financial companies e.g. Fidelity ISA, sell a fixed asset, regardless of what kind, and any amount of payment is made towards the sale of these assets, it's recorded as positive because it's cash inflow.

Importance of cash flow management in investing activities

Cash flow records are for calculating or providing an insight into the financial status of the company. They reflect your gains and losses on a profit or loss statement.

Do negative cash flows mean the company is recording losses?

No. In fact, financial companies with more negative cash flows are considered to be more profit-inclined because they are acquiring capital assets that produce a long term profit system. fiNow that you've been provided with details on the importance of your cash flow records, you are now more involved in your investment process.

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