FUND FLOW STATEMENT ANALYSIS

Every business establishment usually prepares the balance sheet at the end of the fiscal year which highlights the financial position of the yester years It is subject to change in the volume of the business not only illustrates the financial structure but also expresses the value of the applications in the liabilities side and assets side respectively. Normally, Balance sheet reveals the status of the firm only at the end of the year, not at the beginning of the year. It never discloses the changes in between the value position of the firm at two different time periods/dates. The method of portraying the changes on the volume of financial position is the statement fund flow statement. To put them in nutshell, fund between two different time periods. It is further illustrated that the changes in the financial position or the movement or flow of fund.
MEANING & OBJECTIVES OF FUND FLOW
STATEMENT ANALYSIS
A report on the movement of funds or working capital. In a narrow sense the term fund means cash and the fund flow statement depicts the cash receipts and cash disbursements/ payments. It highlights the changes in the cash receipts and payments as a cash flow statement in addition to the cash balances i.e., opening cash balance and closing cash balance. Contrary to the earlier, the fund means working capital i.e., the differences between the current assets and current liabilities. The term flow denotes the change. Flow of funds means the change in funds or in working capital. The change on the working capital leads to the net changes taken place on the working capital i.e., especially due to either increase or decrease in the working capital. The change in the volume of the working capital due to numerous transactions. Some of the transactions may lead to increase or decrease the volume of working capital. Some other transactions neither registers an increase nor decrease in the volume of working capital.
According Foulke “A statement of source and application of funds is a technical device designed
to analyse the changes to the financial condition of a business enterprise in between two dates”
Various Facets of Fund flow statement are as follows:
Statement of sources and application of funds
Statement changes in financial position
Analysis of working capital changes and
Movement of funds statement
Objectives of fund flow statement analysis:
(1) It pinpoints the mobilization of resources and the further utilization of resources
(2) It highlights the financing of the general expansion of the business firms
(3) It exemplifies the utilization of debt finance in the structure of financing
(4) It portrays the relationship between the financing, investment, liquidity and dividend
decision of the firm during the given point of time.
METHODS OF PREPARING FUND FLOW
STATEMENT
Steps in the preparation of Fund Flow Statement:
First and fore most method is to prepare the statement of changes in working
capital i.e., to identify the flow of fund / movement of fund through the detection
of changes in the volume of working capital.
Second step is the preparation of Non- Current A/c items-Changes in the volume
of Non current a/cs have to be prepared only in order to quantify the flow fund i-e
either sources or application of fund.
Third step is the preparation Adjusted Profit& Loss A/c, which already elaborately
discussed in the early part of the chapter.
Last step is the preparation of fund flow statement.
Schedule of Changes in Working Capital
The ultimate purpose of preparing the schedule of changes in the working capital is to illustrates the changes in the volume of net working capital which envisages either sources or application of fund. The schedule of changes are focused as follows
ADVANTAGES OF PREPARING FUND FLOW
STATEMENT
Structured analysis on the Working capital of a firm:
It is the only statement to study the changes in the working capital in between two
different periods from the balance sheet of a firm through structured analysis on the
basis of working capital position.
Illustrative Statement of Financing
It is a statement which highlights the role of various kinds of financing not only in the
dimension of project development and expansion but also growth rate of the organization
To fulfil the Primary Objective of the Financial Management
It not only elucidates the mode of financing but also the application of resources after
raising. It answers to the following queries viz:
How the outsider's liabilities are redeemed?
What is the role of the fund from operation generated?
How the raised funds applied into business?
How the decrease in working capital was applied?
What is the mode of raising of financial resources for an increase in the working
capital?
Facilitation through Financial Planning
The projected fund flow statement from the past performance facilitates the firm to anticipate the future requirement of financial resources. It guides the management to prioritize the application in the future to the tune of scarce resources.
Guide to Working Capital Management
It acts as a guide to the management to maintain the working capital at optimum level
through either purchase or sale of marketable securities during the periods of adequate
and inadequate working capital respectively.
LET US SUM UP
Normally, Balance sheet reveals the status of the firm only at the end of the year, not at the beginning of the year. It never discloses the changes in between the value position of the firm at two different time periods/ dates. A report on the movement of funds or working capital. In a narrow sense, the term fund means cash and the fund flow statement depicts the cash receipts and cash disbursements/payments. The projected fund flow statement from the past performance facilitates the firm to anticipate the future requirement of financial resources. It guides the management to prioritize the application in the future to the tune of scarce resources

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