Cash Flows from Investing Activities: The next step in building cash flow statement is to look at money a company spent on new capital investments. If a company capitalizes an investment, then that outflow of money does not show up on the income statement. That’s because accounting rules allow the company to depreciate (expense) the cost of the investment over time. From a practical standpoint, if a company purchase an asset such as new plant equipment or machinery, then they most likely paid for that asset in cash. When monpy leaves a company, we have an outflow of cash that we need to show in our statement. Example In this example, let’s say ‘X’ Company purchased a new computer system for Rs. 15,00,000 along with an assembly line machine for Rs. 20,00,000. These were the only two capital investments made by ‘X’ Company for the year. In this example, the company was also required to buy a new Machinery worth Rs. 5,00,000 into a special decommissioning fund. Normally, a company might show one line item for the capital investments and label that line item as additions to plant. In this example, we are going to show these items separately
| cash flow from investing activitiles |
Rs. |
| purchase of new computer |
(15,00,000) |
| purchase of assembly line machine |
(20,00,000) |
| purchase of new machiney |
(5,00,000) |
| Net cash used in investing activities |
(40,00,000) |
In the above example, we saw that the company made investment in fixed assets and used Rs.40,00,000.
