Investing Cash Flow: The Purchase or Sale of Long-Term Assets


In the previous article of this series, we examined operating cash flows, which measures day-to-day profitability. This month we move on to the next primary section of the cash flow statement: cash flows from investing activities. Investing activities pertain to the acquisition or disposal of non-current assets (investments) and are usually classified as either capital expenditures—money spent on items such as new property, plant or equipment—or monetary investments such as the purchase or sale of government bonds or stocks of other firms. It is important to remember that, as with all cash flows, an investing activity only appears on the cash flow statement if there is an exchange of cash during the specified period.

Cash flows from investing activities are separately reported because they tell whether the company is investing in assets that are expected to result in future profits or whether it is disposing of long-term assets already owned. It is important to note that investing activity does not take into account the issuance or redemption of company’s own stock or debt.

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