Cash Flows From Investing Activities

Cash flows from investing activities is the second section of a statement of cash flows which details cash flows related to acquisition and disposal of a company's long-term investments such as property, plant and equipment, investment in subsidiaries and associates, etc.

Cash flows from investing activities is separately reported because it tells the users of the financial statements whether the company is investing in resources that are expected to result in increased profits in future periods or whether it is disposing out resources already owned.

Following are cash flows that are typically reported as cash flows from investing activities:

  1. Cash payments to acquire or construct long-term fixed assets such as plant and machinery, vehicles, equipment, etc.
  2. Cash receipts from sale of PPE and intangible assets such as buildings, copyrights, etc.
  3. Cash payments to purchase bonds or shares of other companies (subsidiaries, associates and joint ventures).
  4. Cash receipts from sale of bonds and shares of other companies.
  5. Cash payments in the form of loans and advances and receipt related to payback of such loans and receivables, etc.

In general, US GAAP and IFRS converge on classification of cash flows from investing activities. However, there are some exceptions: IFRS allows dividend income earned on investment in shares and interest earned on loans and advances to other parties to be classified as either an inflow from operating activities or an inflow from investing activities while US GAAP requires it to be reported under the cash flows from operating activities only.


CD Ltd. is engaged in manufacture of fertilizer. For the year ended 30 June 2012, it installed a new plant worth US $800 million (50% of which is financed by issue of debt instruments). The old plant is disposed at a loss of $10 million. The closing written down value of the disposed plant was $150 million. It expended $20 million on construction on new plant building and infrastructure. The company sold off its stake of $50 million in EF Ltd., a subsidiary that was engaged in food processing and received US $10 on account of repayment of principal and $2 million on account of interest income. It received dividends of $5 million during the year. The company reports results in both US GAAP and IFRS.


Cash flows from investing activities$ in million
Cash paid to acquire new plant(400)
Cash paid to construct new buildings(20)
Cash receipt from sale of old plant140
Cash receipt from sale of investment in EF Ltd.50
Cash receipt from payback of loan principal20
Net cash flows from investing activities(210)


  1. Only $400 million is shown as a cash outflow because 50% is paid through issue of debt instrument which is reported in schedule of non-cash transactions.
  2. Cash receipt from sale of plant equals written down value of the plant of $150 million minus the loss of $10 million.
  3. Receipt of principal is reported as an investing cash inflow while dividend income and interest income is not included in cash flows from investing activities under US GAAP. It is reported as a cash inflow from operating activities.

If the company is reporting its performance globally, it would most likely prepare the financial statements in accordance with IFRS. Under IFRS, net cash flows from investing activities would increase by $7 million ($5 million on account of dividend income plus $2 million on account of interest income earned). The corresponding net cash flows from operating activities would be lower by $7 million. The net cash flows are same under both US GAAP and IFRS.

by Obaidullah Jan, ACA, CFA and last modified on
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