Cash flow analysis is an important procedure for both companies and the investors. It is a complicated procedure that can leave an average investor with the thought that delegating security analysis duty to a capable financial advisor might be the best idea. There are different components of cash flow statement which includes:
Cash flow which is gotten from operating activities.
One gotten from financing activities.
Cash flow gotten from investing activities.
Cash flow from operating activities is the money gotten by a company’s main business activities. Cash flow from financing activities is the flow of cash between a firm, its owners and its creditors.
CASH FLOW FROM INVESTING ACTIVITIES
Cash flow from investing activities otherwise known as investment cash flow can be referred to as money gotten or spent on long term assets and other securities which can be sold, as well as making of money and collection of loans. Simply put, cash flow on investment has to do with the incoming or inflow and outgoing or outflow of funds on asset overtime.
Items on the cash flow statement which belong to the investment activities section comes from either loss or gains. For example, funds gotten from disposal of a property or equipment, money from disposing of debt instruments, receipt from the selling of equity instruments, cash gotten from sale of assets like buildings, copyrights, cash gotten from selling bonds and shares etc, can be recorded as gains while payment for a property or equipment, buying of debt instrument, buying of equity instruments, buying of bonds and shares etc can be recorded as losses or outflow. Both the inflow and outflow of funds are classified under investment cash flow.
Calculating Investment Cash Flow
To calculate investment cash flow, you can add back losses and subtract it from the addition of gains made to get the net cash flow from investing activities. That is to say, that anything bringing about the removal of money from the company or business should be added together and the result subtracted from the summation of everything that brings money into the company. For example
A land was sold for 5 000 Dollar and a purchase of equipments and plant of 50 000 Dollar was made, the net cash flow from investment will be =
50 000 - 5 000 = 45 000
A company spent 100 000 Dollar on capital expenditures, sold fixed asset for 20 000 Dollar and bought stock for 30 000 Dollar. To calculate investment cash flow it will be:
Outflow (100 000 + 30 000 = 130 000)
Inflow (20 000) = the net investment cash flow which is 110 000 Dollar.
This 110 000 Dollar will be negative in net investment cash flow.
In conclusion, knowing how to calculate investment flow and doing it periodically is a vital part of any business which every investor and company should be able to do to keep track of the core investing activities going on in his business. It can also help to discern whether a profit or loss is made in a business.
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