Sales and Maturities of Investments refer to the cash received by a company when it disposes of short-term or long-term financial instruments—such as bonds, treasury bills, equity securities—or when debt securities reach their maturity date and return the principal amount.
Why are Sales and Maturities of Investments Important?
Understanding Sales and Maturities of Investments is important because they:
Generate Liquidity: Convert investments back into cash, providing funds for operations, reinvestment, or debt repayment.
Realize Gains or Losses: Trigger recognition of realized gains or losses, affecting profitability and equity.
Manage Cash Flow: Help companies plan for expected cash inflows from investment portfolios, supporting budgeting and liquidity management.
How are Sales and Maturities of Investments Calculated?
On the cash flow statement, Sales and Maturities of Investments are reported in the investing activities section as:
Sales and Maturities of Investments = Cash Received from Sale of Securities + Principal Collected at Debt Maturities
Where cash inflows include:
Proceeds from Sales: Amount received from selling marketable securities at fair value.
Maturity Proceeds: Principal amount returned upon debt instrument maturity, excluding interest (reported separately under operating or investing activities based on classification).
Additional Considerations
Timing and Market Conditions: The timing of sales and market prices can impact realized gains or losses compared to carrying values.
Classification of Proceeds: Proceeds from sales of trading securities often appear in operating cash flows, while sales of available-for-sale or held-to-maturity securities appear in investing activities.
Tax Implications: Realized gains or losses may have tax consequences, influencing after-tax cash flows.