Wednesday, 13 November 2019

Unit 5: Fund Flow Statement


                                                     Unit 5: Fund Flow Statement 

Fund flow statements summarize a firm's inflow and outflow of funds.

Simply put, it tells investors where funds have come from and where funds have gone.

The statements are often used to determine whether companies effi ciently source and utilize funds available to them.

Fund fl ow statements are prepared by taking the balance sheets for two dates representing the coverage period.

The increases and decreases must then be calculated for each item.

Finally, the changes are classifi ed under four categories: (1) Long-term sources, (2) Long-term uses, (3) Short-term sources and (4) Short-term uses.

It is also important to zero out the non-fund based adjustments in order to capture only the changes that are accompanies by fl ow of funds.

However, income accrued but received and expenses incurred but not received reckoned in the profi t and loss statement should not be excluded from the profi t fi gure for the fund fl ow statement.

Fund fl ow statements can be used to identify a variety of problems in the way a company operates.

Meanwhile, a company that is using long-term money to fi nance short-term investments may not be effi ciently utilizing its capital.

Current Assets: Assets which are in the form of cash, equivalent to cash or easily convertible into cash.

Current Liabilities: Short-term fi nancial resources of the fi rm.

Decrease in Working Capital: Decrease in Net working capital i.

Excess of current liabilities over the current assets - Resources side of the fund fl ow.

Flow: Flow means changes occurred in between two different time periods.

Fund from Operations: Income generated from only operations.

Fund Lost in Operations: Loss incurred in the operations.

Fund: Fund means working capital  Increase in Working Capital: Increase in Net working capital i.

Excess of current assets over the current liabilities- Applications side of the fund fl ow.

Non-current Assets: Long-term assets.

Non-current Liabilities: Long-term fi nancial resources.

Statement of changes in Working Capital: Enlisting the changes taken place in between the current assets and current liabilities of two different time horizons.

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