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Investment Cash Flow

Financial Statements

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Investments made by a company also affect cash flow. Investment Cash Flow is devoted to recording these changes. Cash flows into a company when investments generate cash payments. As a general rule, if investment cash flow has large inflows, they have sold investments, acquired dividends, received other payments from investments, or had investments mature. If an outflow occurs the company is typically purchasing investments for the future. As an investor, you should look into the footnotes to see if any specific investments are listed.

It is important to note that a re-evaluation or a write-off of an investment does not affect cash flow. Investment Cash Flow only measures the actual cash that flows into the business or out of the business relative to investments.

 Capital Expenditures/Tangible Fixed Assets

Capital Expenditures are tangible fixed assets. Commonly called plant, property, and equipment, any asset held longer than a year qualifies.  Cash inflows occur when businesses sell these investments, and outflows occur due to the purchase or construction costs of these investments. Depreciation does not affect Capital Expenditures on the cash flow statement since depreciation or amortization does not affect cash flow. In actual cash flow calculation, depreciation is added back since it’s unaffected by cash flow.

Problems with Capital Expenditures

The biggest problem is that capital expenditures actually do depreciate and need to be replaced. The real world reality is not represented on the cash flow statement. Companies that need to consistently make large outflows on capital expenditures spend money that could be used on investments, dividend payments, expanding marketing and sales outreach, or many other things that earn shareholder returns. You should find companies that grow while making low outlays of capital expenditures. Companies forced to spend large sums on capital expenditures depress their earnings or finance the cost. If they’re selling shares to raise capital, they dilute your holdings and per share returns. If they’re entering loans, they hamper long term earnings with interest payments.

Sale and Maturity of (-Investment in) Intangible Fixed Assets

Cash Flow from Intangible Fixed Assets displays the company’s investments in stock, bonds, funds, and other investment instruments. Sometimes this category is divided into purchases, showing cash outflows, and sales or maturities, showing cash inflows. You should look through previous statements and view the outflows compared to inflows of the following years, and determine if the company is making investments that are paying off. If possible, identify the investments the firm is making and analyze those as well.

Cash Provided by (-Used for) Investments

Investment Cash Flow displays the total amount of cash earned from investments made by the company. If positive, this shows all cumulative cash inflows from the sales, returns, or maturities of investments. If negative, this shows all cumulative cash outflows from purchasing new investments.

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