How to analyze the cash flow generated by investment activities

The company's investment activities refer to the trading activities related to the company's assets with an original term of more than 3 months, including the construction of the company's long-term assets and the investment and disposal activities that are not included in the scope of cash equivalents. The cash flow generated by investment activities mainly includes the construction and disposal of long-term assets such as fixed assets and intangible assets, as well as the cash received and paid for obtaining and recovering various equity and creditor's rights investments that are not within the scope of cash equivalents. Among them, the cash inflow of dividends or profits and bond interest income is based on actual receipt, not on the ownership of rights and interests or the right to receive money. This is different from the standard of confirming investment income in the income statement. For example, a subsidiary invested by a listed company achieved a net profit of 5 million yuan this year. The listed company owns 80% of its shares, and according to the equity law, it should be confirmed that it has an investment income of 4 million yuan this year. However, the profits of subsidiaries may not be distributed immediately, and it is impossible to complete them all (surplus reserves should be extracted according to regulations). If the profits of subsidiaries are not turned over temporarily, there will be no corresponding cash inflow into listed companies. Of course, listed companies cannot reflect this investment income as cash inflow from investment activities in the cash flow statement of the year. The cash outflow in a company's investment activities often reflects its efforts to expand its operations, from which we can get a general understanding of the company's investment direction. A company obtains cash from business activities and fund-raising activities in order to create conditions for future development. If the cash does not flow out, it will not bring economic benefits to the company. It is often normal for the net cash flow of investment activities to be negative, which is for the long-term interests of the company, as well as for the higher profit level and stable cash inflow in the future. Of course, wrong investment decisions will be counterproductive, so it is especially required that investment projects can generate economic benefits and cash inflows as scheduled.

When observing the cash flow generated by investment activities in the cash flow statement, we should also carefully study the relationship between investment activities in China and foreign investment. Usually, if a company wants to develop, the scale of long-term assets must be increased. Investment activities: Companies with a substantial increase in net cash outflow from investment in China often mean that the company is facing new development opportunities or new investment opportunities; On the other hand, if the net cash inflow of domestic investment of the company increases substantially, it means that the normal business activities of the company can no longer fully absorb its existing funds. When the net cash inflow from the company's foreign investment increases substantially, it shows that the company is recovering a large amount of foreign investment, and the company's internal business activities may require a lot of funds, and the existing funds within the company cannot meet the capital needs of the company's business activities; If the net cash outflow of the company's current foreign investment activities increases significantly, it means that the company's business activities have not fully absorbed the company's funds, thus freeing up a lot of funds and seeking profit opportunities for it through foreign investment.

If the net cash flow generated by the company's investment activities is not large, it is more intuitive if it is only a structural change between domestic capital and foreign capital. When the company's net cash outflow from domestic investment increases substantially, that is, the net cash inflow from long-term foreign investment increases substantially, it may be that the company has gained new market opportunities and cannot raise enough funds from outside the company for a while, so it has to recover its foreign investment; On the other hand, if the net cash outflow from foreign investment increases significantly, it shows that the company is reducing its internal operation scale and investing the freed funds abroad to seek appropriate profit opportunities.

In fact, when analyzing the cash flow generated by investment activities, we should also comprehensively examine the cash flow generated by fund-raising activities. Under the condition that the cash flow generated by operating activities remains unchanged, if the net cash outflow generated by investment activities mainly depends on the net cash inflow generated by financing activities, it means that the scale expansion of the company is mainly completed by raising funds from outside, that is to say, the company is expanding.

For example, in 2008, a company had a net cash inflow of 570 million yuan from operating activities and a net cash outflow of 520 million yuan from investment activities, which indicated that the company was constantly growing and expanding its investment scale.