To remain competitive, companies must sometimes spend big money on long-term assets and other investments. In the "investing activities" section of its cash flow statement, a company reports the cash outflows and inflows from buying and selling these assets. The total, or net, cash flow from investing activities equals the inflows minus the outflows. When you review a company’s financials, you can calculate its net cash flow from investing activities to determine the overall effect these investment decisions have on its cash balance. Your calculation result can be positive or negative, depending on whether a company bought or sold more assets during the period.
Locate a company’s cash flow statement in its Form 10-Q quarterly report or in its Form 10-K annual report. You can download these forms from the investor relations section of a company’s website or from the U.S. Securities and Exchange Commission’s online EDGAR database.
Find the "investing activities" section on the cash flow statement. Identify the cash outflows in the section, the amounts of which are shown in parentheses. These outflows include purchases of long-term assets, such as property, equipment and patents. They can also include investments in stocks and bonds of other companies or the acquisition of an entire company.
Add the outflows to determine the total cash outflows in the section. For example, assume that a company spent $5 million on a warehouse, $10 million on equipment and $50 million on the acquisition of another company. Add these to get $65 million in total cash outflows for investing activities.
Identify and add the cash inflows in the section to determine the total inflows from investing activities. These inflows arise from the sale of long-term assets and investments. In this example, assume the company sold a $4 million office building and $2 million in bonds in other companies. Add these amounts to get $6 million in total inflows.
Subtract the total outflows from the total inflows to calculate the net cash flow from investing activities. Concluding the example, subtract $65 million from $6 million to get -$59 million, which means that the company’s investing activities reduced its overall cash position by $59 million.
- A negative or positive net cash flow from investing activities isn’t inherently bad or good. The cash flow from these activities depends on the type and age of the company. For example, a young, high-growth company might have a large negative net cash flow from investing activities as it buys assets to expand its business.
- Compare a company’s net cash flow from investing activities over different periods to identify any trends, and read its financial reports to learn about its specific investment strategy. A company that shells out significant cash on investing activities without eventually increasing profits might be using its cash inefficiently.