FUND FLOW STATEMENT

Fund flow statement also referred to as statement of “source and application of funds” provides insight into the movement of funds and helps to understand the changes in the structure of assets, liabilities and equity capital. The information required for the preparation of funds flow statement is drawn from the basic financial statements such as the Balance Sheet and Profit and loss account. “Funds Flow Statement” can be prepared on total resource basis, working capital basis and cash basis. The most commonly accepted form of fund flow is the one prepared on working capital basis.

What are the Advantages of Fund Flow Statements?

Advantages of fund flow are as follows:

• management of various companies are able to review their cash budget with the aid of fund flow statements
• Helps in the evaluation of alternative finance and investments plan
• Investors are able to measure as to how the company has utilized the funds supplied by them and its financial strengths with the aid of funds statements.
• It serves as an effective tool to the management of economic analysis
• It explains the relationship between the changes in the working capital and net profits.
• Help in the planning process of a company
• It is an effective tool in the allocation of resources
• Helps provide explicit answers to the questions regarding liquid and solvency position of the company, distribution of dividend and whether the working capital is effectively used or not.
• Helps the management of companies to forecast in advance the requirements of additional capital and plan its capital issue accordingly.
• Helps in determining how the profits of a company have been invested: whether invested in fixed assets or in inventories or ploughed back.