Cash flows are on the statement of cash flows divided into three groups and one of them is labeled as ‘Investing activities’. First of all when preparing the statement of cash flows two methods of presentation are allowed to be used – direct and indirect. We’ll cover those two methods with their pros and cons in our later blogs, but when it comes to cash flows from investing activities, keep in mind that they are always presented using the ‘direct’ method and we’ll soon tell you why.

Now, the meaning of ‘investing’ should be fairly simple. A company invests into assets as machines, equipment, buildings, software etc. A company may as well purchase shares in other companies’ thus owning subsidiaries, associates or being a part of joint ventures. What a company may also do, is give out loans. Note here that when the activity of giving out loans is a part of daily business routine for the company, granting loans are part of ‘Operating activities’ cash flows and not ‘Investing activities’. So in a nutshell all proceeds or charges arising from such activities are presented on the statement of cash flows within ‘Investing activities’.

To put things into chronological order, you first need to buy an asset or investment, so what are ‘charges’? Under ‘charges’ we mean the outflows of cash which are needed to acquire assets and investments. What often is forgotten is that you only show real cash movement here and not the ‘price’ of the purchase. Why are they different? Well, they don’t necessarily need to be, but sometimes the price which needs to be paid, hasn’t been paid in full yet. The purchase of a share may depend on future results of that company and hence some sums are to be paid in future. Those are not yet part of investing activities cash flows. What often gets overlooked are also the acquisitions of assets when the amount due is a part of ‘Trade and other payables’. Nothing has been paid yet, so no outflow is allowed to be showed as a part of ‘Investing activities’.

Now, after we have purchased an asset or investment, we are entitled to sell or ‘get them back’ (in case of loans). ‘Proceeds’ under investing activities are all cash received from sale of assets or repayments received. All additional proceeds like interest received are also shown under ‘Investing activities’ so keep an eye out for proper classification.

So to sum it up, under ‘Investing activities’ a company has its cash outflows from acquisition of assets and investments and as a result also inflows from further actions like sale or recollection of those assets and investments.