Cash Flow from Investing (CFI)

Cash Flow from Investing Section (CFI)

The cash flow statement (CFS) contains three sections:

1. Cash Flow from Operating Activities (CFO)
2. Cash Flow from Investing Activities (CFI)
3. Cash Flow from Financing Activities (CFF)

In the CFO section, net income is adjusted for non-cash expenses and changes in net working capital.

The subsequent section is the CFI section, in which the cash impact from the purchase of non-current assets such as fixed assets (e.g. property, plant & equipment, or “PP&E) is calculated.

Compared to the cash from operations section, the cash from investing section is more straightforward, as the purpose is to simply track the cash inflows/(outflows) related to fixed assets and long-term investments across a specific period.

Cash Flow from Investing: Format and Line Items

Items reported on a cash flow statement for investing activities include purchases of long-term assets such as property, plant, and equipment (PP&E), investments in marketable securities such as stocks and bonds, as well as acquisitions of other businesses (M&A).

Cash from Investing Activities Formula

So far, we’ve outlined the common line items in the cash from investing activities section.

The formula for calculating the cash from investing section is as follows.

Note that the parentheses above are meant to denote that the respective item should be entered as a negative value (i.e. cash outflow).

In particular, Capex is typically the largest cash outflow — in addition to being a core, recurring expenditure to the business model.

How to Interpret Cash Flow from Investing (CFI)

• Positive CFI: If the CFI section is positive, that in all likelihood means that the company is divesting its assets, which increases the cash balance of the company (i.e. sale proceeds).
• Negative CFI: By contrast, if CFI is negative, the company is likely investing heavily into its fixed asset base to generate revenue growth in the coming years.

Given the nature of the CFI section — i.e. primarily spending — the net cash impact is most often negative, as Capex and related spending is more consistent and outweighs any one-time, non-recurring divestitures.

If a company is consistently divesting assets, one potential takeaway would be that management might be going through with acquisitions while unprepared (i.e. unable to benefit from synergies).

But a negative cash flow from investing section is not a sign of concern, as that implies management is investing in the long-term growth of the company.