Final answer:
Purchasing and acquiring long-term assets are classified as investing activities, which are part of the cash flow statement in business accounting. Companies can finance such investments via early-stage investors, reinvested profits, loans, or stock sales, impacting the rate of return, risk, and liquidity.
Step-by-step explanation:
Purchase and acquisition of long-term assets fall under the category of investing activities in the context of financial accounting and reporting. These activities are part of the investing section of a company's cash flow statement. When a firm invests in long-term assets like machinery, buildings, or engages in research and development, they are allocating resources that are expected to generate profits in future years.
Firms can finance these expenditures through various sources: early-stage investors, reinvesting profits, borrowing through banks or bonds, and selling stock. These decisions are critical as they determine the company's leverage, equity structure, and the cost of capital. Additionally, the chosen method of financing has implications for the business's future cash flows and financial flexibility.
The rate of return on tangible assets is usually moderate, but they carry different levels of risk and liquidity. For instance, real estate might provide moderate risk and low liquidity, while other tangible assets like gold or baseball cards could present high risk and similarly low liquidity. Considering these factors is crucial when developing investment strategies and managing financial assets.