Calculating Net Cash Flow from Investing Activities
Understanding Net Cash Flow from Investing Activities
Net investing cash flow refers to the total amount of cash that has been generated or expended by a company in investing activities during a specific period. In this case, Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million to repurchase treasury shares, $0.5 million to buy short-term investments, sold used equipment for $0.8 million when its book value was $0.6 million, and purchased new equipment for $3.4 million.
The calculation for the net cash flow from investing activities is done by considering the cash inflows (proceeds from sales of assets) and cash outflows (expenses related to buying assets) related to investments. In this scenario, the following transactions were involved:
- Purchase Stock in another company = $2,200,000 (outflow)
- Short-term investment purchase = $500,000 (outflow)
- Equipment sales proceed = $800,000 (inflow)
- Equipment purchase = $3,400,000 (outflow)
By summing up the cash inflows and outflows, the net cash flow from investing activities is calculated as $5,300,000 outflow. This figure is reported on the cash flow statement as a representation of the company's investing activities during the period.