Cash flow from investing activities, also called investing cash flow, refers to the net difference between cash sources and cash uses related to a firm’s investing activities.
Cash flow from investing activities is one of three sections of the cash flow statement. The other sections of the cash flow statement are cash flow from operating activities and cash flow from financing activities.
Sources (inflows) of investing cash flow include the proceeds from the sale of fixed assets, proceeds from the sale or maturity of financial securities, and proceeds from the sale of a business subsidiary.
Uses (outflows) of investing cash flow include the purchase of fixed assets, the purchase of financial securities, and the acquisition of other firms.
For most non-financial companies, the most common line item in the cash flow from investing activities section of the cash flow statement is the purchase or fixed assets, generally known as capital expenditures (capex). Capex made to replace existing fixed assets is called replacement capex or maintenance capex. Capex made to purchase additional fixed assets is called growth capex or expansion capex.
Capex is an important component in the calculation of free cash flow. Free cash flow refers to the amount of cash flow available for discretionary uses – in other words, the remaining cash flow after all necessary operating and investment expenditures have been made. The most generic calculation of free cash flow is to subtract capex from cash flow from operating activities.
