Cash flow from investing activities is one of the three sections of a company's statement of cash flows.
The cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.
The cash flow statement (CFS) measures how well a company manages its cash position, meaning how well the company generates cash to pay it's debt obligations and fund it's operating expenses. The cash flow statement complements the balance sheet and income statement.
The 3 main components of the cash flow statement are as follows:
- Cash from operating activities
- Cash from investing activities
- Cash from financing activities
Investing activities include any outflows of cash or sources of cash from a company's investments. A purchase or sale of an asset, cash out due to a merger or acquisition, loans made or loan proceeds received are all included in investing activities. In short, any changes in assets, investments, or equipment will impact cash from investing activities.
However, when a company divests an asset, the transaction is considered a credit or "cash in" and is listed in investing activities.
Although companies and investors usually want to see positive cash flow from all of a company's operations, having negative cash flow from investing activities is not always bad and needs further evaluation before decisions are made on a company's investing activities.
It's entirely possible and not uncommon for a growing company to have a negative cash flow from investing activities. For example, if a growing company decides to invest in long-term fixed assets, it will appear as a decrease in cash within that company's cash flow from investing activities.
Even well-established companies make investments in long-term assets such as property and equipment from time to time might and might cause investing activities to go negative.
- We can see that Net cash used in investing activities was -$1.859 billion for the period (highlighted in green).
- The two primary drivers for the negative investing activities number were the purchase of property, plant, and equipment for $3.349 billion and the sale of assets crediting cash for $1.441 billion.
- However, cash from operating activities (in blue) totaled $8.519 billion and is more than enough cash to pay for the investment in fixed assets.
At first glance, an investor might be concerned about a negative cash flow in investing activities totaling over $1.8 billion, but when we delve into the numbers, we can see it's a positive sign. Exxon Mobil is an oil and gas producer and needs to update its equipment, drilling rigs, and purchase equipment periodically. As a result, the negative cash flow from investing means the company is investing in its future growth.
On the other hand, if a company has a negative cash flow from investing activities because it's made poor asset-purchasing decisions, then it's possible that the negative cash flow from investing activities might be a warning sign.
It's important to analyze the entire cash flow statement and all its components to determine if the negative cash flow is a positive or negative sign. The most effective way to evaluate a negative cash flow situation is to calculate a company's free cash flow. For more on free cash flow, please read "What's the Formula for Calculating Free Cash Flow?"