Fund flow statement is a statement that reflects the relative position of funds of the company over a two-period horizon and enables analysis of sources and uses of funds for a particular period of time. A fund flow statement highlights about where the funds have been generated and to what it has been put for use. This statement is also known as sources and application of funds.
The sources of funds would include the following:
- The issue of Shares and Debentures For Cash: Only fresh issue to be considered as inflow and not the case where bonus shares are issued as they do not generate any fresh inflow.
- Sale of Assets: The amount received on sale of fixed assets is to be considered as a source of fund. Inflow on a sale of investments can also be considered.
- Long Term Loans: Funds raised by way of long-term borrowing is to be considered as a source of funds; however funds rise by way of short term loans will be captured under working capital changes.
- Decrease in Working Capital: Working capital is current assets less current liabilities. A decrease in the net current assets leads to increase in fund flow which needs to be included.
- Funds from Operations: This represents funds generated from operating activity of the firm and excludes funds generated from investment or financing activities of the business.
The application of funds would include the following:
- Redemption of Shares And Debentures: Premium if any paid also will have to be included in the outflow.
- Purchase of Fixed Assets/ Investments: Any purchase made against shares or on credit shall not be included as outflows under this heading.
- Repayment of Long-term Loans: Short-term repayment falls under working capital; only longer term which is not included in the short term would be a part of this.
- Increase in Working Capital: This would arrive from changes in working capital statement.
- Dividend/Tax Payments: One has to ensure that dividend/tax payment provisions have not been included in the working capital statement else would amount to double counting.
Fund flow statement summarizes the list of sources made available to a firm to finance the activities and how these funds were utilized for the period under consideration.
SuperProfs– India’s Largest Online Coaching Platform is offering FREE Trail Classes for CA/CS/CMA. Now students from all over India can learn from India’s Most Experienced Professors online and get their dream career.