Financial Analysis and Planning
MEANING AND CONCEPTS OF FUNDS :
Funds Flow Statement is a widely used tool in the hands of financial executives for analysingthe financial performance of a business concern. Funds keep on moving in a business whichitself is based on a going concern concept.The term Funds has a variety of meanings.
(a) In a narrow sense
In a narrow sense
means only cash. Funds Flow Statement preparedon this basis is called as
Cash Flow Statement
. In this type of statement only in flow and outflowof cash is taken into account.
(b) In a broader sense
In a broader sense the term
refers to money value in whateverform it may exist. Here
mean all financial resources in the form of men, materials, money,machinery etc.
(c) Popular sense
In a popular sense the term funds means Working Capital I.e.
the excess of current assets over current liabilities. When the funds move inwards or outwards they cause aflow or rotation of funds. Here the word fund means net working capital. In short, if fundsmean working capital, then the statement prepared on the basis is called Funds Flow Statement.The concepts of funds as working capital is the most popular one and in this chapter we shallrefer to fund working capital and a funds flow statement as a statement of sources andapplication of funds.
MEANING AND DEFINITION OF FUNDS FLOW STATEMENT :
Funds Flow Statement is prepared to study the changes in the financial position of a businessover a period of time generally one year. Funds Flow Statement reveals both inflow and outflowof funds. The inflow of funds is known as
sources of the funds
and the outflow of funds means
uses or application of the funds.
Funds flow statement is also known as
Statement of sourcesand Applications of funds
or where got-where gone statement. Funds Flow Statement highlightsand changes in the financial structure of an undertaking. It determines the financialconsequences of business operations.Funds Flow Statement gives detailed analysis of changes in distribution of resources betweentwo Balance Sheet dates. This statement is widely used by the financial analysists and creditgranting institutions and financial and financial managers in performing their jobs. Thus, Funds,Flow Statement, in general is able to present that information which either is not available ornot readily apparent from an analysis of other financial statements.
A statement of sources and application of funds is a technical device designed to analyse thechanges in the financial condition of a business enterprise between two dates.
Funds Flow Statement describes the sources from which additional funds were derived andthe use to which these sources were put.