What is Fund Flow Statement
A Fund Flow Statement is a financial document that provides insights into the movement of funds within an organization over a specific period. It highlights the sources from which funds have been generated and the areas where these funds have been utilized. Unlike a cash flow statement, which focuses on cash transactions, the fund flow statement tracks broader financial movements, including changes in working capital.
Importance of Fund Flow Statement
A fund flow statement is crucial for businesses, investors, and financial analysts as it:
- Identifies financial strengths and weaknesses.
- Helps in decision-making regarding investments and expenditures.
- Provides insight into the company’s financial health and liquidity.
- Aids in strategic planning and financial management.
Key Components of a Fund Flow Statement
A typical fund flow statement consists of two main sections:
1. Statement of Changes in Working Capital
This section details the changes in current assets and liabilities between two balance sheet dates. Working capital is calculated as:
| Particulars | Previous Year (₹) | Current Year (₹) | Increase (₹) | Decrease (₹) |
| Current Assets | ||||
| Cash in Hand | 50,000 | 70,000 | 20,000 | |
| Accounts Receivable | 1,20,000 | 1,00,000 | 20,000 | |
| Inventory | 80,000 | 1,00,000 | 20,000 | |
| Total (A) | 2,50,000 | 2,70,000 | 40,000 | 20,000 |
| Current Liabilities | ||||
| Accounts Payable | 70,000 | 60,000 | 10,000 | |
| Short-term Loans | 30,000 | 50,000 | 20,000 | |
| Total (B) | 1,00,000 | 1,10,000 | 20,000 | 10,000 |
| Net Working Capital (A – B) | 1,50,000 | 1,60,000 | ||
| Increase in Working Capital | 10,000 |
Working Capital = Current Assets – Current Liabilities
2. Statement of Sources and Applications of Funds
This section outlines where the funds came from and how they were used.
| Particulars | Amount (₹) |
| Sources of Funds | |
| Issue of Equity Shares | 50,000 |
| Long-term Loan Received | 1,00,000 |
| Sale of Equipment | 30,000 |
| Operating Profit | 70,000 |
| Total Sources | 2,50,000 |
| Applications of Funds | |
| Purchase of Machinery | 1,20,000 |
| Redemption of Debentures | 30,000 |
| Payment of Dividends | 20,000 |
| Increase in Working Capital | 10,000 |
| Repayment of Long-term Loan | 70,000 |
| Total Applications | 2,50,000 |
Sources of Funds in Fund Flow Statement
- Cash Issue of Shares and Debentures: This is the entire sum obtained from the issue of shares or debentures. However, no cash inflow means no bonus shares or debt conversion into equity shares or vendor shares.
- Long Term Loans: The amount earned from raising Long Term Loans is indicated here. Short Term Loans are not shown here because they were treated in the Statement of Changes in Working Capital.
- Investments and other Fixed Assets Sale: This section shows the total amount obtained from the sale of investments and other fixed assets.
- Operational Funds: The Operational Funds determined in Step II must also be shown here.
- Change in Working Capital: This is the statement’s balancing figure.
Applications of Funds in Fund Flow Statement
- Investments in Fixed Assets and Investments: The Cash Payment made for the acquisition of Fixed Assets and Investments is considered an application of Funds.
- Acquisition of Fixed Assets and Investments: However, if the purchase is accomplished through the issuance of shares or debentures, the transaction will not be considered an application of funds. In the same way, if the purchases are made on credit, they will not be considered fund requests.
- Redemption of Debentures and Preference Shares, as well as the repayment of the loan: In this case, the payment made, including the Premium (minus the Discount), is to be considered as a fund application.
- Payment of Dividend and Tax: If the provisions are omitted from Current Liabilities and Current Provisions are put back to profit to define the “Funds from Operations,” the payments of dividend and tax are to be treated as applications of funds.
- Increase in Working Capital: This would be the Statement’s Balancing Figure, and it would result from the adjustment in the Working Capital Statement.
Format of Fund Flow Statement in Excel
Creating a Fund Flow Statement in Excel is simple and allows for accurate calculations.
Step-by-Step Guide to Preparing Fund Flow Statement in Excel
- Set Up the Workbook
- Create separate sheets for:
- Balance Sheets
- Income Statement
- Working Capital Changes
- Fund Flow Statement
- Create separate sheets for:
- Input Data
- Enter the relevant financial data into respective sheets.
- Calculate Working Capital Changes
- Compute the difference between current assets and liabilities.
- Determine Sources and Applications of Funds
- Identify the sources (e.g., loan proceeds, asset sales) and applications (e.g., capital expenditures, loan repayments).
- Use Excel Formulas
- Apply SUM, IF, and other financial formulas for accuracy.
- Generate the Final Report
- Format the sheet for clarity, including headings, currency symbols, and cell formatting.
Fund Flow Statement Format PDF
For those who prefer a downloadable version, you can find Fund Flow Statement Format PDFs online for quick reference. These templates help businesses streamline financial reporting and analysis.
Fund Flow Format – Example
Let’s assume a business scenario where a company is expanding operations and needs to understand its fund flow for the year.
- Sources of Funds:
- Raised ₹5,00,000 through equity shares.
- Acquired a long-term loan of ₹8,00,000.
- Sold old machinery for ₹1,00,000.
- Application of Funds:
- Purchased new equipment worth ₹7,00,000.
- Paid off previous loans amounting to ₹3,00,000.
- Increased working capital by ₹2,00,000.
The fund flow statement would summarize these transactions, providing a clear picture of financial movements.
Advantages of Fund Flow Statement
- Financial Planning – Helps in budget planning and financial decision-making.
- Liquidity Analysis – Identifies liquidity position and funding requirements.
- Performance Evaluation – Assesses the efficiency of financial management.
Limitations of Fund Flow Statement
- It does not consider non-monetary aspects.
- Focuses on past data, limiting predictive insights.
- Requires proper categorization of financial transactions.
Difference Between Fund Flow Statement And Cash Flow Statement
The Fund Flow Statement and the Cash Flow Statement are both financial statements that are used to analyse the individual transactions of a corporation. However, as discussed below, there are some differences between the two: –
The Fund Flow Statement is created using the Accrual Accounting System. The Cash Flow Statement, on the other hand, solely considers transactions involving cash or cash equivalents.
The Fund Flow Statement analyses the Sources and Uses of Long-Term Capital, and the resulting Net Increase or Decrease in Long-Term Capital is reflected in the firm’s Working Capital. The Cash Flow Statement determines the Cash Flow of Funds from Operations purely based on the increase or decrease in current assets or liabilities.
For long-term financial planning, the Fund Flow Statement is more advantageous. Cash Flow Analysis is more beneficial for identifying and resolving a business’s financial problems.
The Statement of Cash Flows reconciles the monies generated by diverse sources with their varied uses. The Opening Cash Balance is the starting point for the Cash Flow Statement, and the Closing Cash Balance is the ending cash balance.
Conclusion
A Fund Flow Statement is a critical financial tool for businesses, helping them track fund movements and make informed financial decisions. Whether using Excel for dynamic calculations or referring to PDF formats for structured reporting, this statement is indispensable for financial analysis and planning.
