Cash Flow From Investing Activities
Cash flow from investing activities is always presented in direct format. AT&T’s cash flow from investing section is presented below.
The major investments made by AT&T in 2006 included $8.3 billion for capital expenditures. Much of this expense, for AT&T, was spent maintaining or replacing existing plant. For other companies, particularly younger companies, capital expenditures are often necessary to keep up with planned growth. Underinvestment in capital could lead to lost sales opportunities, while too much investment would be inefficient. A portion ($756 million) of the $8.3 billion was recovered through sales (dispositions) of assets, investments and businesses the company no longer needed. It also received $368 million more in cash from acquired firms than it spent in acquiring those firms. This is because the acquisitions were made using company stock rather than cash.
AT&T lists separately the money it spends buying short-term investments (held-to-maturity securities) and the proceeds it receives as these investments mature. In both cases the amount is relatively small compared to AT&T’s total cash flows. Alternatively, the company could list the net cash flow from purchases and maturities on a single line. AT&T’s cash flows from investing were negative in all three years. This is common, especially for growing firms.
For more information, see all articles on: Accounting, Financial Statement Analysis, Fundamental Analysis See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
