Getting Started: The Statement of Cash Flows

Companies do often invest in stocks of other companies, and this also belongs in the investing section. But while the profit made from selling a stock might look like an investing activity, it's not. The actual initial investment is an investing activity, but when the stock is sold, the gain is income, and it counts as an operating activity.

The investing section of the statement of cash flow doesn't necessarily have to have a positive net cash flow to be in good shape. Since spending money (cash outflow) helps the company in the long run, it's perfectly acceptable to see a negative number at the bottom of the investing activities section.

Financing activities: When companies need more money than they currently have, they raise it by engaging in financing activities. Financing generally comes in two forms: equity (stock ) and debt (bonds ). Each source of financing in any given period is listed in this section.

Also included in the financing activities section are the dividends you receive from the company as a shareholder . Since you've taken a role in financing the company by buying stock, companies that pay dividends view their payment as a sort of cost to maintain your financing in the company.

Generally speaking, you'll see more financing inflows at newer companies that are growing at a faster pace than more-established ones (see TheStreet.com's Business Section).

Remember, those investing activities may grow the company, but they also take a whole lot of cash -- that's why they're often paid for through financing.