CHAPTER 18
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
Understanding the Real Capital Structure and Needs of a Business
Every business needs to invest in long-term assets to support its business operations and future growth. Manufacturing companies need to constantly reinvest in machinery and equipment to stay competitive and replace worn-out assets. Technology companies wouldn’t be around very long if they didn’t continually invest in new innovations, product development, intellectual property, and so on. Utility companies, new energy generation facilities, airlines—well that’s easy—new airplanes, and the list goes on and on. This concept of investment and where does the cash come from to support these investments is the basis of Chapter 18 on understanding cash flows from investing and financing activities.
These two simple concepts represent the basis for understanding cash flows from investing and financing activities as businesses must constantly invest in assets, hard or soft, internally produced or externally acquired, to drive earnings growth. Further, by focusing on these two segments of the cash flow statement, a better understanding of financial structure of a company can be obtained as it relates to using debt and equity to finance its operations.
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