investing activities

Examples of investing activities in the following topics:

• Cash Flow from Investing

  • Cash flow from investing results from activities related to the purchase or sale of assets or investments made by the company.
  • These activities are represented in the investing income part of the income statement.
  • However, this cash flow is not representative of an investing activity on the part of the company.
  • The investing activity was undertaken by the shareholder.
  • Some examples of investment activity from the company's perspective would include:

• Activities of the Business: Financing, Investing, and Operating

  • Activities of the business include operating activities and non-operating activities such as investing activities, and financing activities.
  • Activities of the business include operating activities, investing activities, and financing activities .
  • In addition to operating activities businesses engage in non-operating activities.
  • Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity.
  • Investing activities include purchases or sales of an asset (assets can be land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, payments related to mergers and acquisitions, and dividends received.

• Reporting Investing Activities

  • These activities are represented in the investing income part of the income statement.
  • It is important to note that investing activity does not concern cash from outside investors, such as bondholders or shareholders.
  • However, this cash flow is not representative of an investing activity on the part of the company.
  • The investing activity was undertaken by the shareholder; therefore, paying out a dividend is a financing activity.
  • When reporting investing activities, it is important to be able to decipher a cash inflow from a cash outflow.

• Components of the Statement of Cash Flows

  • The cash flow statement has 3 parts: operating, investing, and financing activities.
  • Investing activities are purchases or sales of assets (land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, and payments related to mergers and acquisitions.
  • Non-cash investing and financing activities are disclosed in footnotes to the financial statements.
  • Statement of cash flows includes cash flows from operating, financing and investing activities.
  • Recognize how operating, investing and financing activities influence the statement of cash flows

• Cash Flow from Financing

  • Cash flows from financing activities arise from the borrowing, repaying, or raising of money.
  • Everything concerning the loan is a financing activity.
  • Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.
  • As is the case with operating and investing activities, not all financing activities impact the cash flow statement -- only those that involve the exchange of cash do.
  • Distinguish financing activities that affect a company's cash flow statement from all of the business's other transactions

• Alternate Sources of Funds

  • The cash flow statement, which shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.
  • Operating activities that generate cash flows are:
  • Cash inflows from investing activities involve cash flows associated with non-current assets:
  • Other activities which impact long-term liabilities and equity of the company are also listed under financing activities, such as:
  • The cash flow statement shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.

• Reporting Financing Activities

  • Reporting financing activities involves determining if cash is received or paid out due to financing activities such as issuing stock or paying dividends.
  • Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.
  • Everything concerning the loan is a financing activity.
  • Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.
  • Non-cash financing activities may include:

• Key Considerations for the Statement of Cash Flows

  • The statement of cash flows lists all cash inflows and outflows during a reporting period from operating, investing and financing activities.
  • Operating activities - principal revenue-producing activities of the company and other activities that are not investing or financing activities.
  • Investing activities - the acquisition and disposal of long term assets and other investments not included in cash equivalents.
  • An available-for-sale security is an investment that does not qualify as "held-to-maturity" or "trading".
  • Financing activities - activities that result in changes in the size and composition of the equity capital and borrowings of the enterprise.

• Role in Matching Savings and Investment Spending

  • Savings are income after-consumption and investment is what is facilitated by saving.
  • Assuming a closed economy, one where there is no export or impart activity to interfere with the domestic savings level, on an aggregate basis individual savings creates the supply of loanable funds available for investment purposes.
  • The amount of savings available in the economy is equal to the amount of funding available for investment activity.
  • On a macroeconomic theory basis, a higher the savings rate promotes business activity my lessening the cost of money and increasing risk taking activities to facilitate growth or production of goods and services.
  • Savings are used to fund investments, where investments are defined as expenditures on factory plants, equipment and homes.

• Joint ventures and direct investment

  • Both partners invest money and share ownership and control of partnership.
  • Thus, they will invest in wholly owned subsidiaries.
  • An organization using this approach makes a direct investment in one or more foreign nations.
  • However, subsidiaries require more investment as the subsidiary is responsible for all marketing activities in a foreign country.
  • While such operations provide control over marketing activities, considerable risk is involved.