Cash Flow Statement – What is the Investing And Financing Section?

Cash Flow Statement – Investing Section

Another portion of the statement of cash flows reports the investment that the company took during the reporting year. New investments are signs of growing or upgrading the business’s production and distribution facilities and capacity.

Disposing of long-term assets or divesting itself of a significant part of its business can be good or bad news, depending on what’s driving those activities. A business generally disposes of some of its fixed assets every year because they reached the end of their useful lives. The business usually disposes of, sells, or trades these old fixed assets for new ones. The value of a fixed asset at the end of its useful life is called its salvage value.

The company reports the proceeds from selling fixed assets as a source of cash in the investing activities section of the statement of cash flows. Usually, these are minimal amounts.

Cash Flow Statement – Financing Section

Like individuals, companies sometimes have to finance their acquisitions when their internal cash flow isn’t enough to finance business growth.

Financing refers to raising capital from debt and equity sources by borrowing money from banks and other sources willing to loan money to the business and its owners, putting additional money in the business. The term also includes the other side, making payments on debt and returning capital to owners. It includes cash distributions by the business from profit to its owners.

Most businesses borrow money for both short terms and long terms. Most cash flow statements report only the net increase or decrease in short-term debt, not the total amounts borrowed and total payments on the debt.

When reporting long-term debt, however, both the total amounts and the repayments on long-term debt during a year are generally reported in the statement of cash flows. The accountant reports these figures as gross amounts rather than net.