Fund Flow Statement

Fund flow statement is a statement that compares the two balance sheets by analyzing the sources of funds (debt and equity capital) and the application of funds (assets) and its reasons for any differences. It helps the company see through where their money has been spent and from where they have received the money (long-term funds raised by issues of shares, debentures, and sale of non-current assets).

Table of contents

• What is the Fund Flow Statement?
  • Fund Flow Statement Example
    • #1 - Statement showing changes in working capital
    • #2 - Statement showing funds from operations
    • #3 - Statement of Fund Flow
    • Fund flow statements offer a concise overview of the inflow and outflow of funds within an organization during a specific period.
    • Fund flow statements serve as a valuable tool for organizations to gain insights into their cash position, conduct a thorough financial performance analysis, and identify areas for potential financial management improvement.
    • Fund flow statements hold significant importance for investors, creditors, and other stakeholders as they provide valuable information to assess an organization's financial health and stability.

    Fund Flow Statement Example

    It has three separate statements –

    

    1. Statement showing changes in working capital.
    2. Funds from operations.
    3. Statement of fund flow.

    Fund Flow Statement Video Explanation

    So, we will start with the first one.

    #1 - Statement showing changes in working capital

    In this statement, you need to effect the changes in working capital. Working capital equals current assets minus current liabilities. We will see the format and example of how it is done.

    Statement showing changes in working capital

    Particulars	31.03.2015 (in US $)	31.03.2016 (in US $)	Increase (in US $)	Decrease (in US $)
    Current Assets -
    Inventories	120,000	150,000	30,000	-
    Accounts Receivable	110,000	70,000	-	40,000
    Cash & Bank	65,000	80,000	15,000	-
    Bills Receivable	46,000	32,000	-	14,000
    Prepaid expenses	13,000	16,000	3,000	-
    Total Current Assets (A)	354,000	348,000
    Current Liabilities -
    Accounts Payable	45,000	60,000	-	15,000
    Bills Payable	30,000	25,000	5,000	-
    Outstanding expenses	11,000	12,000	-	1,000
    Total Current Liabilities (B)	86,000	97,000
    Net Working Capital (A – B)	268,000	251,000
    Net Decrease in Working Capital	-	17,000	17,000	-
    Total	268,000	268,000	70,000	70,000

    #2 - Statement showing funds from operations

    In this type oIn this type of fund flow statement, we will take into account the current year’s profit/loss and then make some adjustments (adding back depreciation, loss on sales of fixed assets, etc.) and then deduct the profit/loss of the previous year.

    Let’s have a look –

    Statement showing funds from operations

    Funds from operations	Amount (in US$)	Amount (in US$)
    Profit & Loss A/C as on 31.03.2016	250,000
    Add:
    Depreciation on Plant	13,000
    Depreciation on Buildings	11,000
    Preliminary expenses are written off	5,000
    Loss on the sale of fixed assets	4,000
    Amount transferred to Reserve	17,000
    Proposed dividend	15,000
    Provision for income tax	32,000
    98,000
    348,000
    Less: Profit & Loss A/C as on 31.03.2015	(150,000)
    Funds from Operations	198,000

    This statement can be alternatively prepared as “Adjusted Profit & Loss A/C,” where you can take all the working notes into account.

    Now, let’s talk about the next statement.

    #3 - Statement of Fund Flow

    This is the final statement of the entire fund flow.

    And we will take the above statements into account to see the effect in this statement. One thing you need to keep in mind is that when the uses of funds would be deducted from the sources, it should match the net increase/decrease in working capital.

    Let’s get started.

    Statement of Fund Flow at the year ended 31 st March 2016

    Particulars	Amount (in US$)	Amount (in US$)
    Sources of Funds
    Funds from operation (ref: the second statement)	198,000
    Sale of Fixed Assets	50,000
    Issue of new shares for preference shareholders	100,000
    Total Sources (A)	348,000
    Applications of Funds
    Purchase of Plant	108,000
    Purchase of Buildings	42,000
    Payment of taxes	100,000
    Payment of dividend	65,000
    Redemption of Preference Shares	50,000
    Total Application (B)	365,000
    Net Decrease in Working Capital (A – B)	17,000

    Frequently Asked Questions (FAQs)

    1. What are the limitations of the fund flow statement?

    The limitations of a fund flow statement include the fact that it only provides information about changes in working capital and long-term funds and does not show the current financial position of a company. It also does not provide details about the timing or reasons for changes in funds and may not reflect the true liquidity position of a company.

    2. How do fund flow statements differ from cash flow statements?

    Fund flow statements differ from cash flow statements in that fund flow statements focus on changes in working capital and long-term funds, while cash flow statements focus on changes in cash and cash equivalents. As a result, cash flow statements provide a more detailed and accurate picture of a company's cash position and ability to meet short-term obligations. In contrast, fund flow statements provide information about changes in sources and uses of funds over a longer period.

    3. What is the difference between fund flow and income statements?

    The main difference between a fund flow statement and an income statement is that a fund flow statement focuses on changes in working capital and long-term funds. In contrast, an income statement focuses on revenues, expenses, and profits or losses during a specific period.

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