Cash flow from investing
In this part, we’ll discuss Tesoro Corporation’s (TSO) cash flow from investing activities (or CFI). We say from, but items under this type of cash flow are usually negative, implying expenditure.
CFI mainly includes capital expenditures (or capex) that a company makes toward growing its business. It also includes asset acquisitions that a company makes.
Occasionally, a company may sell some of its assets. This shows up as a positive number, a source of cash.
Over the last seven years, Tesoro’s capex has seen a pattern that reflects the fortunes of the sector. The company spent a lot of money on its refining operations in 2007 and 2008. The following years saw a slump in capex as the global economy went through a deep recession.
As the fortunes of the refining industry picked up near 2012, Tesoro also started increasing its capex. It has already spent ~$500 million in the first three quarters of 2014.
While the refining segment has been receiving the lion’s share of these expenditures, the rising trend in expenditures toward Tesoro Logistics (TLLP) and retail segments supports the rising importance of these to the company.
These companies have experienced a favorable business environment in the last few years. They are among the top 15 holdings of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Cash flow from operations
Fast-growing companies often need more cash than they can generate internally, mainly from its operations. That’s its cash flow from operations (or CFO) we discussed in the previous part.
For example, Tesoro made acquisitions in 2007 and 2013 that required it to spend large amounts of money, well in excess of its CFO. In a case like this, companies will see sharp draws in their cash levels (see Part 1) and will often need to raise money from external sources.
The next part in this series explores Tesoro’s cash flows from financing activities, the primary source of external capital for a company and a sort of buffer that bridges its operating and investing activities.