Question

How are cash flows from investing activities computed?

A) Cash flows from investing activities are not calculated separately; they are included in the overall cash flow statement.
B) Cash flows from investing activities are computed by subtracting cash received from the sale of long-term assets and securities from the cash spent on purchasing such assets.
C) Cash flows from investing activities are determined by analyzing the company's profit and loss statement.
D) Cash flows from investing activities are based on the company's revenue and expense reports.

Answer 1

Cash flows from investing activities are computed by subtracting the cash spent on purchasing long-term assets and securities from the cash received from their sale. This helps in understanding the reinvestment efforts of a business.

Step-by-step explanation:

Cash flows from investing activities are computed by analyzing the changes in a company's long-term assets and investment securities. The correct calculation is done by subtracting cash outflows from cash inflows related to these activities. Cash outflows include money spent on purchasing long-term assets like property, plant, and equipment, and cash inflows involve cash received from selling these types of assets.

This calculation helps businesses determine the cash generated or spent on activities intended for reinvesting in the company to promote growth and increase shareholder value. It is crucial to understand that these calculations do not involve routine revenue and expenses but are specifically related to investments made by the business in long-term assets or securities.