Cash Flow from Investing Activities Examples

Explore practical examples of cash flow from investing activities calculations.
By Jamie

Understanding Cash Flow from Investing Activities

Cash flow from investing activities is a crucial component of a company’s cash flow statement. It reflects the cash spent on investments in long-term assets, as well as the cash received from the sale of these assets. This section of the cash flow statement helps stakeholders understand how a company is allocating its resources for future growth. Below are three diverse and practical examples of cash flow from investing activities calculations.

Example 1: Purchase of Equipment

Context

A manufacturing company, ABC Corp, decides to invest in new machinery to enhance production efficiency. The total cost of the machinery is $150,000.

ABC Corp also sells an old piece of equipment for $30,000, which had been fully depreciated.

Example Calculation

  1. Cash outflow for new machinery: -$150,000
  2. Cash inflow from the sale of old equipment: +$30,000

Net Cash Flow from Investing Activities:

  • $150,000 + $30,000 = -$120,000

Notes

  • The negative cash flow indicates that the company is investing heavily in new assets.
  • This is a common scenario for companies looking to enhance operational capacity.

Example 2: Real Estate Investment

Context

XYZ Realty invests in a commercial property to diversify its portfolio. The purchase price of the property is $500,000. The company also sells a smaller property for $200,000 to fund this investment.

Example Calculation

  1. Cash outflow for new property: -$500,000
  2. Cash inflow from the sale of smaller property: +$200,000

Net Cash Flow from Investing Activities:

  • $500,000 + $200,000 = -$300,000

Notes

  • The cash flow reflects a significant investment aimed at long-term growth.
  • Investors often analyze these transactions to assess a company’s expansion strategies.

Example 3: Purchase of Stocks in Another Company

Context

Tech Innovations Inc. decides to acquire shares in a startup for strategic collaboration. The investment totals $100,000. They also sell shares of another company they had invested in for $70,000.

Example Calculation

  1. Cash outflow for stock purchase: -$100,000
  2. Cash inflow from the sale of shares: +$70,000

Net Cash Flow from Investing Activities:

  • $100,000 + $70,000 = -$30,000

Notes

  • This example illustrates how cash flow from investing activities can include financial investments, not just physical assets.
  • Companies often diversify their investments to mitigate risks and tap into new markets.