Investing activities

Definition

Investing activities involve the purchase and sale of long-term assets and other investments not included in cash equivalents. These activities are crucial for understanding a company's growth and capital expenditure.

5 Must Know Facts For Your Next Test

1. Investing activities include transactions like buying or selling property, plant, and equipment.
2. They also encompass purchases and sales of marketable securities, excluding those classified as cash equivalents.
3. Cash flows from investing activities are reported in the statement of cash flows.
4. Negative cash flow from investing activities can indicate heavy investment in future growth.
5. Positive cash flow from investing activities might result from asset sales or divestitures.

Review Questions

• What types of transactions are included under investing activities?
• How do investing activities affect a company's long-term growth?
• Why is it important to differentiate between operating, investing, and financing activities on the statement of cash flows?

Related terms

Operating Activities:

These involve the primary revenue-generating operations of a business, including receipts from sales and payments to suppliers.

Financing Activities:

These include transactions involving debt, equity, and dividends such as issuing shares or repaying loans.

Cash Equivalents: Highly liquid short-term investments that can be quickly converted to known amounts of cash with insignificant risk of change in value.