investing activities

Examples of investing activities in the following topics:

• Cash Flow from Investing

  • Cash flow from investing results from activities related to the purchase or sale of assets or investments made by the company.
  • These activities are represented in the investing income part of the income statement.
  • However, this cash flow is not representative of an investing activity on the part of the company.
  • The investing activity was undertaken by the shareholder.
  • Some examples of investment activity from the company's perspective would include:

• Reporting Investing Activities

  • These activities are represented in the investing income part of the income statement.
  • It is important to note that investing activity does not concern cash from outside investors, such as bondholders or shareholders.
  • However, this cash flow is not representative of an investing activity on the part of the company.
  • The investing activity was undertaken by the shareholder; therefore, paying out a dividend is a financing activity.
  • When reporting investing activities, it is important to be able to decipher a cash inflow from a cash outflow.

• Components of the Statement of Cash Flows

  • The cash flow statement has 3 parts: operating, investing, and financing activities.
  • Investing activities are purchases or sales of assets (land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, and payments related to mergers and acquisitions.
  • Non-cash investing and financing activities are disclosed in footnotes to the financial statements.
  • Statement of cash flows includes cash flows from operating, financing and investing activities.
  • Recognize how operating, investing and financing activities influence the statement of cash flows

• Payments

  • Cash payments describe cash flowing out of a business resulting from operating activities, investment activities and financing activities.
  • These cash payments can result from operating activities, investment activities and financing activities.
  • Generally speaking, normal operating activities refer to the cash effects of transactions involving revenues and expenses that impact net income.

• Cash Flow from Financing

  • Cash flows from financing activities arise from the borrowing, repaying, or raising of money.
  • Everything concerning the loan is a financing activity.
  • Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.
  • As is the case with operating and investing activities, not all financing activities impact the cash flow statement -- only those that involve the exchange of cash do.
  • Distinguish financing activities that affect a company's cash flow statement from all of the business's other transactions

• Reporting Financing Activities

  • Reporting financing activities involves determining if cash is received or paid out due to financing activities such as issuing stock or paying dividends.
  • Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.
  • Everything concerning the loan is a financing activity.
  • Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.
  • Non-cash financing activities may include:

• Market Actors

  • Issuers may be domestic or foreign governments, corporations, or investment trusts.
  • There are three types of U.S. mutual funds: open-end, unit investment trust, and closed-end.
  • Exchange-traded funds are open-end funds or unit investment trusts that trade on an exchange.
  • An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.
  • A hedge fund is an fund that can undertake a wider range of investment and trading activities than other funds.

• Overview of Investment Banking Functions in M&A

  • Many companies looking to expand, or streamline, their business will use investment banks for advice on potential targets and/or buyers.
  • With increasing competitive pressures being placed on businesses and the trend towards globalization, companies are engaging more and more in M&A activity.
  • Many companies looking to expand or streamline their business will use investment banks for advice on potential targets and/or buyers.
  • An investment bank that represents a potential seller has a much greater likelihood of completing a transaction (and therefore being paid) than an investment bank that represents a potential acquirer.
  • In fact, one of the main roles investment banks play is to introduce new securities to market.

• Defining the Cost of Capital

  • The cost of capital is the rate of return that could be earned on an investment with similar risk.
  • If a project is of similar risk to a company's average business activities, it is reasonable to use the company's average cost of capital as a basis for project evaluation.
  • Since IRR measures the efficiency of investments, as opposed to magnitude, IRRs are commonly used to evaluate the desirability of investments or projects.
  • If the IRR of an investment exceeds its cost of capital, the project should be undertaken.
  • A graph showing the decision between two exclusive investments based on IRR.

• Assets

  • Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months.
  • Non-current assets include property, plant and equipment (PPE), investment property (such as real estate held for investment purposes), intangible assets, long-term financial assets, investments accounted for by using the equity method, and biological assets, which are living plants or animals.
  • There are two primary forms of intangibles - legal intangibles (such as trade secrets (e. g., customer lists), copyrights, patents, and trademarks) and competitive intangibles (such as knowledge activities (know-how, knowledge), collaboration activities, leverage activities, and structural activities).
  • Investments accounted for by using the equity method are 20-50% stake investments in other companies.
  • The investor's proportional share of the associate company's net income increases the investment (and a net loss decreases the investment), and proportional payment of dividends decreases it.