The Dow Jones Industrial Average (^DJI 1.03%) was up 148 points in early afternoon trading on Tuesday as positive manufacturing data beat expectations. The S&P 500 (^GSPC 0.71%) moved into record territory on broad-based buying.

As an investor, days like today can be bittersweet. On the one hand, your investments are on the rise, making you money right now. But on the other hand, your next investment just got a bit more expensive. 

Over the past few weeks, I've highlighted Dow component Cisco Systems (CSCO 1.57%) as a stock that could represent that next investment. The networking specialist appears to be undervalued, and we've also looked at its product mix across the globe

Today, as the market shoots higher, let's see where Cisco is investing its cash. To do that, we'll use the company's statement of cash flows. You can download the full spreadsheet to see fiscal 2014 details here.

How to interpret the statement of cash flows

If you think back to your first experience with financial statements or accounting, the statement of cash flows may bring back some minor headaches. It sits in between the balance sheet and income statement, and helps investors understand exactly where the company is generating or spending cash.

For example, if a company increases the inventory it is carrying, that is a use of cash. The company must spend money to buy more inventory. That investment does not appear on the income statement. It's instead hidden away on the balance sheet.

Therefore, net income (on the income statement) will not be affected by spending that cash, so looking only at the income statement ignores a potentially huge investment in inventory that could have a major impact on the company. The statement of cash flow solves problems like this.

Net cash from operations

CSCO Cash from Operations (Quarterly) Chart

CSCO Cash from Operations (Quarterly) data by YCharts.

At the top of the report is net income, direct from the income statement. From there, the statement of cash flows adjusts net income for cash and noncash expenses in the operations of the business. This flows down to the first subtotal, the "Net Cash From Operating Activities."

For Cisco, cash flow from operations has averaged about 156% of net income through the third quarter of its fiscal 2014. The company generated $5.6 billion in profit and $8.7 billion in net cash from operations.

The adjustment is primarily driven by noncash expenses such as depreciation and amortization, which recur consistently from quarter to quarter. In the quarter ended Jan. 25, 2014, the company reduced the level of accounts receivable outstanding, which generated an additional $773 million in cash flow in that quarter.

Net cash from investing activities

CSCO Cash from Investing (Quarterly) Chart

CSCO Cash from Investing (Quarterly) data by YCharts.

Below the net cash from operations is net cash from investing activities. This is where investors can see the cash used by the company to buy investments -- think acquisitions, minority stakes in other companies, or investments in long-term assets within the company, such as buildings or machinery.

As of the fiscal third quarter, Cisco had made $27.9 billion in investments and an additional $2.8 billion in acquisitions. This spending was somewhat offset by proceeds from the sale or maturities of investments, totaling about $26.5 billion. Net on net, the company invested about $5 billion more than it recouped.

A negative number in this category is not something to fear. It makes sense that a company would use some of its positive operating cash flow to invest in the future. In the case of Cisco, about one-third of operating cash flow is reinvested into the company via acquisitions or other long-term asset purchases.

Net cash from financing activities

CSCO Cash from Financing (Quarterly) Chart

CSCO Cash from Financing (Quarterly) data by YCharts.

The next section of the statement is the cash flow from financing activities. This section outlines any debt payments, new debts, or changes in the company's capital structure. This is a great place to see how much money the company is investing in both share buybacks and dividend payments to shareholders.

Cisco repurchased nearly $8 billion stock over the past three quarters, a potential indication that management believes the company is undervalued. The company also paid out $2.7 billion in dividends to shareholders through three quarters of fiscal 2014.

Looking at these figures from another perspective, you could say that the company has invested nearly $40 billion over just the past nine months -- $8 billion in stock repurchases, $28 billion in general investments, and about $3 billion in acquisitions.

Cisco also repaid just over $3 billion in existing debt, and then took out $8 billion in new loans in the quarter ended April 26.

The ultimate point of the statement of cash flows -- the change in cash

CSCO Cash and Equivalents (Quarterly) Chart

CSCO Cash and Equivalents (Quarterly) data by YCharts.

Finally, at the very bottom of the statement, we reach the conclusion. Just how much real cash flow the company is generating.

Cisco, as of April 26, had $6.2 billion of cash and equivalents in the bank. That compares to $7.9 billion at the beginning of the fiscal year nine months prior. Therefore, Cisco has seen negative cash flow -- not EBITDA or another proxy for cash flow -- but real cash on cash change of $1.68 billion.

Is negative cash flow bad? In this case, it's not bad at all. The company is putting its cash to work to pay returns to shareholders, to invest in the company, and to seek out acquisitions that can fuel its long-term viability. 

For long-term investors, taking a detailed look at the statement of cash flows is a great and convenient place to find out loads of important information about the company that you won't find elsewhere. In the case of Cisco, the cash flow statement appears just as we should expect it -- tons of cash flow flowing out of the company's operations, heavy long-term investing, and a shareholder friendly capital structure.