Understanding financial reports requires an understanding of the activities of the business. Describe at least four investing activities that firms use to obtain the productive capacity to carry out its business activities

Answer 1

Investing activities include the following:

1 . Land, buildings, and equipment. These investments provide the capacity to manufacture and
sell products and to create and sell services. They are usually long term, in the sense that
they provide productive capacity for a number of years.
2 . Patents, licenses, and other contractual rights. These investments provide rights to use ideas
and processes. They are intangible, in the sense that they do not have a physical existence.
3 . Common shares or bonds of other firms. These investments make a firm an owner or creditor
of another firm. Short-term investments in equity shares typically involve partial ownership,
while long-term investments in equity interests involve partial or complete ownership
of another business.
4 . Inventories. Firms maintain an inventory of products to sell to customers. For example,
Great Deal maintains inventories of consumer electronics, home office products, entertainment
software and appliances.
5 . Accounts receivable from customers. In many businesses, customers do not pay for goods
and services immediately. Accounts receivable describes the amounts owed to a firm by its
customers for short periods, such as 30 days. In extending credit to customers, the firm
does not collect cash right away. If the firm did not extend the credit, however, it might not
make the sale in the first place.
6 . Cash. Most firms maintain cash balances (like a corporate checking account) to pay their
current bills.