Fund Flow Statement
A Fund Flow Statement presents the movement of funds (working capital) between two accounting periods. It explains the sources of funds raised (like loans, share capital) and how they were applied (such as asset purchases, debt repayment). Unlike the cash flow statement, this focuses on long-term financial activities and is based on accrual accounting. It helps understand the changes in a company’s financial structure, showing whether funds were used productively or inefficiently, thus aiding in strategic financial planning and control.
🎯 Objectives:
- To identify long-term sources and uses of funds.
- To analyze changes in working capital
- To examine the financing of asset purchases or debt repayment.
- To evaluate the financial health and capital structure.
- To support management in long-term planning and decision-making.
- To detect mismanagement or diversion of funds.
Important to Users:
- Management: Assists in planning long-term investments and fund allocation.
- Financial Analysts: Helps study capital movement and fund utilization.
- Investors: Checks how efficiently funds are sourced and applied.
- Auditors: Verifies fund use aligns with recorded financial changes.
- Banks: Assesses company’s working capital management capability.
Different Methods:
- Working Capital Change Statement: Shows increase or decrease in working capital.
- Fund Flow Statement: Lists sources (like loan, capital) and applications (like asset purchase).