Investment activities refer to the main sources of income of a business and along with it, the statement of the cash flows. In accounting, it is referred to as the period in which a company has made investments in other ventures or purchased or sold long-term assets.
If you don’t have much knowledge about financing, then you might be scratching your head. However, don’t worry as this guide will provide you with a detailed overview of investment activities to make things as clear as a crystal. Read this together with our other Finance guide and you'll be ready to invest!
Cash Flow from Investing Activities
In layman’s terms, cash flow simply refers to the changes a company has gone through in terms of finances and whether it has gained or lost money during the accounting period.
The accounting or reporting period of a company is the analysis of the financial performance of a company. It is done by professional finance managers and contains the financial investment statements and data to provide a detailed insight into the companies’ financial standings.
Financial statements are further broken down into three types:
Cash Flow Statement
A cash flow statement is used more as an intermediary between a balance sheet and financial statements. As the name suggests, it shows the overall revenue of the company along with the finances spent for certain purposes.
The idea behind the balance sheet remains pretty straightforward as it refers to the overview of the income of a company. This includes total liabilities, assets as well as owner’s equity.
You don’t have to be a finance student to know about balance sheets. The chances are that you may have created your balance sheets as well at home.
Lastly, financial statements refer to the income of a company and overall revenue during a certain period. It includes the recent transactions of the company.
Long Term Assets and Transactions
Investing activities also include investments for long-term assets as well as other financial transactions like bonds, stocks or business acquisitions.
Invest activities are further broken down into two main types, namely: inflows and outflows.
As the name suggests, inflows refer to the cash that the company collects from different sources, including, property, stocks, bonds or other long-term assets.
On the other hand, outflows is the money that the company has to pay outside. This may include financial investments made by the company along with buying new assets.
Are Investment Activities Important for a Business?
Investment activities are the building block of a business. To keep your finances rolling, you need to continuously invest your money at the right place for long-term revenue. Otherwise, it won’t be long before you would find yourself bankrupted by paying your employees out of your pocket. It’s always worth getting the help of professional finance companies if things sound too difficult.
Common Examples of Investment Activities
You can refer to investment activities as transactions that affect the cash flow of a business such as:
Purchase of assets
Sale of investments.
Investment activities play a key role in determining how a business is doing. After all, a business must know where its finances are going to remain operational.
The Bottom Line
Those who lack financial literacy may face difficulties understanding the concept of investment activities. However, it simply refers to purchasing long-term assets and investing the companies’ money. On the other hand, the cash flow is the statement of a investment company and its gains and losses over the accounting period.
The success of any business heavily depends on its investment activities, so if you plan to start your venture, then you might want to do your homework on it.