The investing segment of the cash flow statement captures changes in a company's investment in the firm. Financial and tangible assets allow the company to produce future profits. Factors such as purchases of property, plant, and equipment; investment or sale of marketable securities; and investments or divestitures in subsidiaries can be recorded in this segment.
The elements displayed in this area will vary depending upon the nature of the industry. Financial firms will use cash to make loans, while industrial firms will have higher cash flows used for property, plant, and equipment.
Purchases and investments are uses of cash, so they are recorded as a negative, while the receipts from the sale of assets represent a source of cash and are reported as a positive figure. Accounting rules dictate that only investments with maturities of three months or less qualify under the definition of cash equivalent. Therefore even the purchase of short-term, near cash instruments can show up as an investment and corresponding use of cash.
Negative cash flow from investing activities indicates that the company made additional long-term investments in the company's assets or outside investments. A positive cash flow from investing activities indicates a divestiture or sale of the long-term assets of the firm.
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