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Cash Flow From Investing Activities (Formula & Example) - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of Wallstreetmojo friends today we are
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going to discuss a tutorial on cash flow
from investing activity you're going to
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learn some formulas and some of the top
examples on the same so let's begin at
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the very inception cash flow from the
investing activity it provides
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information of the cash flow or cash
inflow and you can say cash outflow
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related to the poachers in the sales of
the assets property plant equipment
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loans made to the suppliers or one
receipt from the customers in the
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payment related to very important merges
and acquisition or known as M&A in a
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nutshell we can say that the cash flow
from the investing activity reports the
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purchase and the sale of long-term investments
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and property in plants and equipment so
in this article we are going to look at
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a couple of things let's begin from the
initial portion the first is cash flow
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from the investing activity as a part of
what is investments so cash flow from
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the investment includes all the
transaction involving acquiring selling
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long term investments property plants
and equipments this items are found in
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the non current or portion of balance
sheet non current portion of balance
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sheet so it includes a purchase of the
plant property equipments which is your
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cash outflow then it includes a sale or
for again property plant and equipment
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which is again your cash inflow that
this is your purchase this is your sale
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then you have investment in JV
investment in joint venture and
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affiliates that is a cash outflow
payments in business that have been
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acquired so you can just write takeovers
that will be again your cash outflow
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then proceed from the sale of asset that
will be your cash inflow and finally
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investment in marketable security which
would be a cash outflow so it is always
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easier to understand when we create some
questions and then answer them so here
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are some of the few questions that when
answered would help us to understand the
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topic in a much easier manner the first
and the foremost question is that what
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happens with the cash account of the
company when they have purchased land
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and the next question that comes into
mind what happens to the cash account of
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the company when it has been the land
the when the sale of land happens so
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when we see answer to the question
number 1 in the case one the cash
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account would decrease okay
the cash account would decrease and as
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the company would need to pay some cash
for the land purchase double entry
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system of accounting would lead to
increase in the in the assets account so
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in this case the account under
consideration is property plant
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equipment right the next is a sale of
land so in this case the cash account
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would increase as the company would cash
get the cash for the land sold and the
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double-entry system of the accounting
would lead to the decrease in the assets
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account so in this case the asset
account on the Constitution is property
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plant and equipment so cash flow accounting cash flow from investment an example
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will be taking at the basic one let's
assume that there is mr. X I'll come to
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the next sheet let's assume that there
is mr. X he starts a new business has
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planned that at the end of the month
he'll prepare his financial statements
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like in the income statement balance
sheet and cash flow statement so in the
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1st month what happens is that there
was no revenue in the 1st month and no
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such operating expense hence the income statement will show that income
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statement will show us a 0 so in the
cash flow from the investing activity
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will be no activity 2 hence it will
again remain 0 so the investing
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activity will be shown as
0 in the 2nd month let's say the
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company did some investments in the land and property land and property let's say
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during the month amounting to 1 lakh
this is a cash outflow hence it as it
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should be negative and in the cash flow
from the investing activity so you can
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say the cash flow from the investing
activity over here is going to be 1
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lakh so let's uh calculate the cash flow from
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the investments and let's calculate the
cash flow and an investment when we have
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the balance sheet data as you can see
this is a basic example balance sheet
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non-current assets details are given the
total assets date data is given and so
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on and so forth with other details so
let's begin with our with our
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calculation over here we'll assume that
a with the gain on the sale of the land
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let's assume that the gain on the sale
of land is going to be 20,000 so let's
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calculate the cash flow from the
investment as we already know that the
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the cash flow from the investment in
relation in related to the non current
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portion of the balance sheet so there
are 2 main items in the non current
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assets you can say the first one is land
and property another one is plant and
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equipments V&E got it so the first one
is a cash flow from the sale of cash
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flow from sale of land now when we talk
about cash flow from the sale of land
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decrease in the land they'll be first will
the decrease in the land and gain from
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the sale of the assets so from this data
as you can see 80,000 less 70,000 and
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then you'll be adding any gain if any
which was 20,000
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right which we just discussed gained
from the sale is 20,000 so that's that
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will be the cash flow from the sale of
the land the 2nd is the cash outflow
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cash outflow from the purchase of
property plant and equipment so in that
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case it's going to be quite it's it's
visible over here 1 lakh 20 as you
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can see or -1 lakh 70 so that's going to be simply we know the
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Calif we know the amount just doing the
calculation 50000 so cash flow
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from the investment formula and goes
something like this cash flow from the
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sale of land and the sale and the cash shot from the
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PPE that has the property plant
equipment so cash flow from investment
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activity is going to be as equal to
30,000 over here there's some problem 87
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okay this should be 70000 so it's
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going to be 30000 less 50000 that will give us negative
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20000 so the cash flow from the investment is an outflow of minus
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20000 now we'll be discussing
a cash flow from the investing activity
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as an example which we are going to
discuss of Apple now let's have a look
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at the few more sophisticated cash flow
statements for the company listed in NYC
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now this is basically the cash flow from
the investment of JPMorgan Chase as you
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can see the Apple cash flow from the
investment outflow is uh close enough to
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44,000 977 billion dollars I'm sorry
this is the temperate for Apple's case
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the Apple cash flow activity of an
outflow is 45,000 977 Apple is heavily
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investing in the purchase of the
marketable securities that is the Apple
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purchased close enough to 142 428
billion worth of marketable securities
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in 2015 in addition Apple generated the cash
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inflows by selling the marketable this
marketable security cash inflows apple
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solid sold sorry apple sold its
marketable security generate 90,000 536
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billion in cash inflow in addition apple
invested the acquisition of the property
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plant and equipment which is quite
visible over here it's negative it was
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11000 now it's 12000 so 12
you can say that it is to the tune of
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12000 $12.73 billion in 2015 then we can take
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another example of Amazon now let's
interpret the about cash flow from the
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investing activity in how indicate
indicator it is of the situation with
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the company some important points of
amazon's cash flow from the investing
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activity has fallen like you know amazon
has continuously investing in purchase
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of the property plant and equipment okay
and it including software's and victor
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up means amazon's cash flow outflow for
like around this was $4590
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billion and 4893 as you can see a billion dollar in
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2015 in 2014 respectively so you should
be mindful in that that the expenses
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under this head can be of the great
indication on where the company is
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heading to the quality the quality of
the kepax is to be determined by reading
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the management discussion is in analysis
MDA and which will provide a great
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insight on where the company is planning
to be set to are planning to go for the
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next few years so based on this we can make a find a
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conclusion that after discussing all the
examples investors earlier used to look
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only on the income statement and balance
sheet for the clues about the
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institution the company however over the
years investors have now also started
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looking at each one of the statements
alongside the consumptions of the cash
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flow statements so this actually helps
in getting the whole picture and also
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helps in taking much more calculated
investment decisions as we have also
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seen throughout the art the tutorial
that we are able to see the cash flow
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from the investing activity is a really
a great indicator about the core
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investing activity of the company
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