6.4. Sailing Through the Rest of the Statement of Cash Flows

After you get past the first section of the statement of cash flows, the remainder is a breeze. Well, to be fair, you could encounter some rough seas in the remaining two sections. But, generally speaking, the information in these sections is not too difficult to understand. The last two sections of the statement report on the other sources of cash to the business and the uses the business made of its cash during the year.

6.4.1. Investing activities

The second section of the statement of cash flows (see Figure 6-1 or 6-2) reports the investment actions that a business's managers took during the year. Investments are like tea leaves, which serve as indicators regarding what the future may hold for the company. Major new investments are the sure signs of expanding or modernizing the production and distribution facilities and capacity of the business. Major disposals of long-term assets and shedding off a major part of the business could be good news or bad news for the business, depending on many factors. Different investors may interpret this information differently, but all would agree that the information in this section of the cash flow statement is very important.

Certain long-lived operating assets are required for doing business. For example, Federal Express and UPS wouldn't be terribly successful if they didn't have airplanes and trucks for delivering packages and computers for tracking deliveries. When these ...

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