Cash Flow from Investing (CFI)

Cash Flow from Investing (CFI) is a crucial section of a company's Statement of Cash Flows that reveals how it's using its money for long-term growth. Think of it as the company's financial diary for its major shopping sprees and asset sales. It tracks the net amount of cash spent or generated from a company's investment-related activities over a specific period. These aren't your everyday operational expenses; we're talking about big-ticket items like buying new factories, selling off old equipment, or purchasing stocks and bonds in other firms. A positive CFI means more cash came in from selling investments than went out, while a negative CFI means the company spent more on investments than it sold. For an investor, understanding this flow is vital because it peels back the curtain on management's long-term strategy and its commitment to creating future value.

The CFI section is a straightforward tally of cash coming in and cash going out from investment activities. It generally boils down to two categories.

When cash flows into the company from its investing activities, it’s a cash inflow. These are the typical sources:

• Selling long-term assets: This includes offloading Property, Plant, and Equipment (PP&E) like buildings, vehicles, or machinery.
• Selling investment securities: When a company sells its holdings of another company's stocks or bonds.
• Collecting loan principals: If the company previously lent money to another entity, the repayment of that loan's principal is a cash inflow.

Cash outflows are the mirror image—money spent on investments. This is where you see a company putting its capital to work:

• Purchasing long-term assets: This is the big one, known as Capital Expenditures (CapEx). It includes buying new PP&E to expand or upgrade operations.
• Purchasing investment securities: Buying stocks or bonds of other companies or making strategic acquisitions.
• Making loans to others: When the company acts like a bank and lends money to other businesses or entities.

For a value investor, CFI isn't just a number; it's a story about management's capital allocation skill. Is the company building a fortress or selling the bricks to stay afloat?

Don't be alarmed by a negative CFI! In fact, for a healthy, growing company, a consistently negative number is often a fantastic sign. It shows that management is reinvesting cash back into the business by purchasing new assets (CapEx) to fuel future growth. This spending on PP&E is a primary driver for increasing a company's long-term earning power. A company that isn't spending on its future is a company that's standing still. This CapEx figure is also a critical component in calculating a company's Free Cash Flow (FCF), the lifeblood of any business from a value investor's standpoint.

A positive CFI requires more detective work. If the company is raising cash by selling assets, you need to ask why.

• The Good: A company might be selling off an unprofitable division or non-essential assets to focus on its core, high-return business. This is smart capital allocation and a positive strategic move.
• The Bad: A consistently positive CFI could signal that a company is in distress, forced to sell its productive assets just to generate enough cash to survive. This is like selling your family silver to pay the bills—not a sustainable strategy.
• The key is to look at the context. Was it a one-time, strategic sale, or is it a recurring pattern of liquidation?

CFI doesn't exist in a vacuum. The purchase or sale of an asset reported in this section will directly affect the asset accounts on the Balance Sheet. Furthermore, if an asset is sold for more or less than its book value, the resulting gain or loss will appear on the Income Statement. By looking at all three statements together, you get a complete and coherent picture of the company's financial health and strategic direction.