[Summary]
Investment cash flow is an item that shows how much money a company uses for capital investment, M&A, and the acquisition and sale of securities. Even if the numbers are negative, it is not necessarily a bad thing if it is an investment aimed at future growth. The important thing is to check whether the investment is covered by operating cash flow and whether there is a temporary positive result from the sale of assets. This article is an explanation for educational purposes and is not intended to recommend any particular stock.
First, the conclusion
Investment cash flow is an indicator of how a company uses money for the future.
In general, cash flows out for new factory construction, store openings, system investments, corporate acquisitions, etc., so companies that are investing in growth are likely to have a negative return. Conversely, years with many asset sales can be positive.
Therefore, it is easy to make a mistake if you simply judge that "it's negative because it's bad" or "it's good because it's positive," and you need to look at it in conjunction with operating cash flow and investment details.
How it works
The cash flow statement mainly consists of the following three parts:
| classification | what to show | Typical example |
|---|---|---|
| Operating cash flow | Ability to earn cash from your main job | Product sales, service provision, purchasing and expense payments |
| investment cash flow | movement to use cash for the future | Capital investment, M&A, securities acquisition, asset sales |
| financial cash flow | Trends in financing and shareholder returns | Borrowing, repayment, dividends, stock buybacks |
Of these, investment cash flow represents the increase or decrease in cash due to investments in fixed assets, subsidiary stocks, etc., or the sale of these.
For example, it can be read as follows:
| Transaction details | Impact on investment cash flow | How to read |
|---|---|---|
| invested in equipment | Minus | Investing in future production capacity and store network |
| acquired a subsidiary | Minus | Aiming to expand business and supplement functionality through M&A |
| sold land and securities | Plus | Collecting cash from asset sales |
Specific example
Even the same minus sign has very different meanings.
| case | Operating cash flow | investment cash flow | how to see it |
|---|---|---|---|
| Growth investment type | big plus | Minus | There is a high possibility that the cash earned from the main business is used for growth investments. |
| Asset sale type | slightly positive or weak | Plus | Possibility of temporarily securing cash by selling assets |
Negative case for growth investment
Companies that have positive operating cash flow every year and invest in new factories and new store openings within that range are likely to be using funds toward future sales expansion.
| Item | amount |
|---|---|
| Operating cash flow | +30 billion yen |
| investment cash flow | -18 billion yen |
In this case, you are investing from the cash you earn from your day job, so it is a relatively natural investment.
Positive case for asset sale
On the other hand, even if investment cash flow is positive, it does not necessarily mean that you can feel safe. This is because there is a possibility that you are only temporarily increasing your cash by selling your real estate holdings or securities.
| Item | amount |
|---|---|
| Operating cash flow | +4 billion yen |
| investment cash flow | +12 billion yen |
In this case, it is necessary to check whether there is little growth investment or whether funds are secured through asset sales.
Points to see
Is your investment covered by operating cash flow?
The first thing you should look at is whether you can support your investments with the cash you earn from your day job. If your operating cash flow is weak but your investment cash flow is significantly negative, you may be relying on borrowings or capital increases.
what are you investing in
The amount of investment cash flow alone is not enough. The meaning changes depending on whether it is capital investment, M&A, or just financial investment. You may also want to check the notes on financial statements and securities reports.
Look at multiple years rather than a single year
Large-scale investments have large fluctuations from year to year, so it's easy to misunderstand if you judge them based on just one year. If you line up companies over a period of 3 to 5 years, it will be easier to see whether a company is a continuous investment type company or a temporary asset sale type company.
Also check free cash flow
Free cash flow is generally viewed as "operating cash flow - investing cash flow." The investment cash flow here is usually negative, so the idea is to see how much surplus is left after subtracting the investment burden from the operating cash flow.
Points to note
When looking at investment cash flows, be careful of the following misconceptions:
| common misconceptions | actual view |
|---|---|
| It's bad because it's negative | If it is a growth investment, there is a possibility of positive spending. |
| It's good because it's a plus | It may just be a temporary increase in cash from asset sales. |
| One year is enough | Large-scale investments and sales vary greatly from year to year. |
| Just look at the amount | It matters what you use it for and why you use it. |
In addition, in economically sensitive industries and large manufacturing industries, investment cycles are large, and it is not unnatural for investment cash flow to be significantly negative for a certain period of time.
action steps
If you are a beginner and want to check it out, the following order is easy to understand.
| order | Check items | Reason to watch |
|---|---|---|
| 1 | Is operating cash flow stable and positive? | Understand whether your main business can support your investment |
| 2 | What was the investment cash flow used for? | Can distinguish between growth investment and asset sale |
| 3 | financial cash flow | You can check whether the company is dependent on borrowing or returns to shareholders. |
| 4 | Trends from 3 to 5 years | Easy to distinguish between temporary causes and continuing trends |
Summary
Investment cash flow is an important item that indicates a company's future investment and asset sales movements. Negative performance itself is not necessarily bad news; growth investments supported by operating cash flow may be evaluated positively. On the other hand, even if it is positive, if it is temporary cash secured by selling assets, it does not necessarily directly indicate the strength of the business.
It will be easier to make a decision if you check the order of operating cash flow, investment details, financial cash flow, and multi-year trends.