The cash flow statement is one of the most revealing documents of a firm’s financial statements, but it is often overlooked. It shows the sources and uses of a company's cash, both incoming and outgoing. Various sections of a company's cash flow statement contribute to the overall change in the company's cash position. Cash flow from investing activities is one of three primary categories, along with operating and financing, in the cash flow statement.

Cash Flow From Investing Activities

Analyzing the cash flow statement is extremely valuable because it provides a 澳洲幸运5官方开奖结果体彩网:reconciliation of the beginning and ending cash balance on the balance sheet. Keep in mind, though, that thi♛s analys🅰is is difficult for most publicly traded companies because of the thousands of line items that can go into financial statements. But here are a few things you can consider.

A firm may have a negative overall cash flow for a given quarter. If the company cannot generate positive cash flow from its business operations, a negative overa🌠ll cash flow is not necessarily a bad thing.

An item on the cash flow statement belongs in the investing activities section if it is the result of any gains (or losses) from investments in financial markets and operating 澳洲幸运5官方开奖结果体彩网:subsidiaries. An investing activity also refers to cash spent on investments in capital assets such as 澳洲幸运5官方开奖结果体彩网:property, plant, and equipment, which is collectively referred to as 澳洲幸运5官方开奖结果体彩网:capital expenditure (CapEx).

Cash Inflows and Outflows

The following is a look at some of the cash inflows that may arise from a firm’s investing activities:

• Proceeds from disposal of property, plant, and equipment
• Cash receipts from the disposal of 澳洲幸运5官方开奖结果体彩网:debt instruments of other entities
• Receipts from sale-of-equity instruments of other entities

Here are some of the outflows that may come from a company's investing activities:

• Payments for acquisition of property, plant, and equipment
• Payments for the purchase of debt instruments of other entities
• Payments for the purchase of equity instruments of other entities
• Sales/澳洲幸运5官方开奖结果体彩网:maturities of investments
• Purchasing and selling 澳洲幸运5官方开奖结果体彩网:long-term assets and other investments

Firms with 澳洲幸运5官方开奖结果体彩网:excess capital or financial institutions such as banks and insurance companies will report the buying and selling activity from their investment 澳洲幸运5官方开奖结果体彩网:portfolios in the investing activity p✨ortion of the cash flow statement.     &nb꧃sp;

Reading a Company's Cash Flow Statement

A simple cash flow (of investing activities) for restaurant chain Texas Roadhouse (TXRH):

You'll notice that the main investing activity for Texas Roadhouse was CapEx. Texas Roadhouse is growing briskly and spends plenty on CAPEX to open new restaurant locations across the U.S. In its 10-K filing with the 澳洲幸运5官方开奖结果体彩网:Sec𓆉urities and Exchange Commission (SEC), the company details that it spends money to remodel existing stores and build new ones, as well as to acquire the land to build on. Overall, CapEx is an extremely important cash flow item that 澳洲幸运5官方开奖结果体彩网:investors are not going to find in reported company profits.

The company also strategically bought 澳洲幸运5官方开奖结果体彩网:franchises and spent $4.3 million in 2012 doing so. Sometimes it may sell restaurant equipment that is outdated or unused, which then brings in cash instead of being an outflow like other CapEx. This activity amounted to just over $1 million in 2012. 

Net property and equipment for Texas Roadhouse increased by around $34.4 million between 2011 and 2012. Of this amount, the capital expenditure was 澳洲幸运5官方开奖结果体彩网:capitalized (not expensed) on the balance sheet, net of depreciation. The other costs were expensed and reflected on the income statement. As for the nearly $4.3 million spent to buy out the franchised restaurants above, here is where it was allocated across the balance sheet:

For a public company, it’s going to be nearly impossible to use the original 澳洲幸运5官方开奖结果体彩网:balance sheet and cash flow statements to determine each item down to the specific dollar amount. With the help of the 澳洲幸运5官方开奖结果体彩网:notes to the financial statements (the above is from Texas Roadhouse’s notes on acquisitions), an interested party can get a good idea of the major items on the investing portion of the cash flow statement and what they mean for a firm’s🧔 financial health.

Significance of Cash Flow Statements

A firm can suffer from spending unwisely on acquisitions or CapEx to either maintain or grow its operations. A guide for CapEx is how it relates to depreciation and 澳洲幸运5官方开奖结果体彩网:amortization, which can be found in 澳洲幸运5官方开奖结果体彩网:cash flow from operations on the cash flow statement. This represents an ann෴ual charge on past spending that was capitaliz♕ed on the balance sheet to grow and maintain the business.

For Texas Roadhouse, this amounted to $46.7 million in 2012. The fact that CapEx was nearly double this amount demonstrates that it is a 澳洲幸运5官方开奖结果体彩网:growth firm. But there was little worry about its financial health because it had minimal long-term debt (other than 澳洲幸运5官方开奖结果体彩网:capital leases) and generated an impressive $146 million in operating cash flow for the year to easily cover CapEx and $29.4 million in stock buybacks for the year (澳洲幸运5官方开奖结果体彩网:cash flow from financing activity). 

The Bottom Line

Cash flow statements outline the cash coming in and out of a company during a specific time. There are three different cash flow statements: cash flow from operations, from financing, and investing activities. Cash flow statements can be used with other key financial reports to help you understand 🐬whether a company is financially healthy and is a sound investment.