BUSINESS FINANCE

Name of Learner: ___________________________________ Grade Level: __________

Section:___________________________________________ Score: _______________

LEARNING ACTIVITY SHEET

THE FLOW OF FUNDS AND THE ROLE OF THE FINANCIAL MANAGER

Background Information for Learners

(Discuss the meaning of flow of funds.)

The term ‘Flow of Fund’ refers to the changes in working capital of the movement or
changes of funds. In other words, while a transaction is taking place, any increase or
decrease in funds or working capital is called Flow of Fund. If the funds or working capital
increases, it is treated as the inflow or sources of fund. On the other hand, if the funds or
working capital decreases, it is called the outflow of fund. (www.kullabs.com)

The flow of funds, therefore, denotes the earning and spending of cash or the growth
and reduction of working capital—i.e., fund inflows and outflows. Fund inflows include
activities designed to produce revenues, such as selling products, services, investments, and
other company assets, as well as issuing stocks and bonds. On the other hand, fund outflows
include paying wages, obtaining insurance, purchasing company assets and materials,
making long-term investments, and paying dividends and taxes. At one point, companies
gauged their flow of funds by using any definition of funds and included a financial
statement reporting these activities in their annual reports.
(www.referenceforbusiness.com/encyclopedia)

(How do you calculate fund flow?)

Preparing Funds Flow Statement: Steps, Rules and Format (www.yourarticlelibrary.com)

Steps for Preparing Funds Flow Statement:

The steps involved in preparing the statement are as follows:
1. Determine the change (increase or decrease) in working capital.
2. Determine the adjustments account to be made to net income.
3. For each non-current account on the balance sheet, establish the increase or decrease
in that account. Analyze the change to decide whether it is a source (increase) or use
(decrease) of working capital.
4. Be sure the total of all sources including those from operations minus the total
of all uses equals the change found in working capital in Step 1.

General Rules for Preparing Funds Flow Statement:

The following general rules should be observed while preparing funds flow statement:
1. Increase in a current asset means increase (plus) in working capital.
2. Decrease in a current asset means decrease (minus) in working capital.
3. Increase in a current liability means decrease (minus) in working capital.

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 4. Decrease in a current liability means increase (plus) in working capital.
5. Increase in current asset and increase in current liability does not affect
working capital.
6. Decrease in current asset and decrease in current liability does not affect
working capital.
7. Changes in fixed (non-current) assets and fixed (non-current) liabilities affects
working capital.

Format of Funds Flow Statement:

A funds flow statement can be prepared in statement form or ‘T’ form.

Both the formats are given below:

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(Do all transactions create flow of funds?)

The flow of funds does not occur when a transaction affects fixed assets and fixed
liabilities or current assets and current liabilities. This kind of transaction flow is called no
flow of fund and it occurs only between non-current accounts. Some examples of such
transactions which do not affect the flow of funds or which are not recorded in the fund’s
flow statement are: Collection from debtors or payment to creditors, purchase or sales on
inventory in cash or credit, purchase or sales of marketable securities, exchange of fixed
assets, purchase of fixed assets by issue of shares, conversion of debentures into shares, etc.
(www.kullabs.com)

(Give the comparison between cash flow and fund flow)

In addition, when we have the comparison between cash flow and fund flow, cash
flow refers to the current format for reporting the inflows and outflows of cash, while funds
flow refers to an outmoded format for reporting a subset of the same information. Cash flow
is derived from the statement of cash flows. (https://www.accountingtools.com/)

Moreover, a cash flow statement shows the inflows and outflows of cash and cash
equivalents. Cash includes cash in hand and demand deposits with the banks while cash
equivalents are highly liquid investments, i.e. they can be readily converted into cash like
marketable securities, commercial papers, and short-term government bonds. It explains the
changes in the cash in hand and cash at bank at the beginning and the end of the accounting
period.

Funds refer to the working capital of the company, so fund flow statement is a
statement that studies the changes in the working capital of the business between two
accounting years. It shows the additions in the working capital through various sources like
issuing shares, debentures or raising loans, etc. and reduction in it through different
applications like the redemption of shares or debentures, repayment of loans, purchase of
fixed assets, etc.

Fund Flow Statement explains the reasons for the change in the working capital of the
business between two Balance Sheet dates through various Non-Current Assets and Non-
Current Liabilities, which are responsible for the increase or decrease in the working capital.
A fund flow statement displays the financial status of an organization, which ensures easy
comparison and analysis between two accounting periods. It is helpful in understanding the
variability in the assets, liabilities and equity of the company. (keydifferences.com)

Illustration of fund flow/flow of funds.

Flow of Funds

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THE ROLE OF THE FINANCIAL MANAGER
(Discuss first the meaning of financial manager)

Financial managers perform data analysis and advise senior managers on profit-
maximizing ideas. Financial managers are responsible for the financial health of an
organization. They produce financial reports, direct investment activities, and develop
strategies and plans for the long-term financial goals of their organization. Financial
managers typically:

 Prepare financial statements, business activity reports, and forecasts,

 Monitor financial details to ensure that legal requirements are met,
 Supervise employees who do financial reporting and budgeting,
 Review company financial reports and seek ways to reduce costs,
 Analyze market trends to find opportunities for expansion or for acquiring other
companies,
 Help management make financial decisions.

The role of the financial manager, particularly in business is changing in response to

technological advances that have significantly reduced the amount of time it takes to produce
financial reports. Financial managers’ main responsibility used to be monitoring a company’s
finances, but they now do more data analysis and advise senior managers on ideas to
maximize profits. They often work on teams, acting as business advisors to top executives.

Financial managers also do tasks that are specific to their organization or industry. For
example, government financial managers must be experts on government appropriations and
budgeting processes, and healthcare financial managers must know about issues in healthcare
finance. Moreover, financial managers must be aware of special tax laws and regulations that
affect their industry.

Although this area of work is open to all graduates, the following subjects may be
particularly helpful and may entitle someone to exemptions from some professional
examinations:

 accountancy and finance  management

 business  mathematics
 economics  statistics

A relevant postgraduate course may be useful, but isn't essential. In certain niche areas,
specialized knowledge gained through a postgraduate program may give someone a
competitive advantage. Graduate schemes in finance and related areas almost always require
further study for professional qualifications. 

(What skills do FM need?)

As to skills, financial managers need to show evidence of the following:

 commercial and business awareness

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  excellent communication and presentation skills
 an analytical approach to work
 high numeracy and sound technical skills
 problem-solving skills and initiative
 negotiation skills and the ability to influence others
 strong attention to detail and an investigative nature
 the ability to balance the demands of work with study commitments
 good time management skills and the ability to prioritize
 the ability to work as part of a team and to build strong working relationships
 the capacity to make quick but rational decisions
 the potential to lead and motivate others
 good IT(Information Technology) skills.

(Discuss one by one the Roles of FM. ( is there any difference between functions and roles of a financial manager?) if there are
differences then concentrate on the roles based on your learning competency.)

The roles of financial managers can vary enormously. In larger companies for
instance, the role is more concerned with strategic analysis, while in smaller
organizations, a financial manager may be responsible for the collection and
preparation of accounts.
In general, tasks across roles may include:

Providing and interpreting financial information- Knowing how to work with the
numbers in a company's financial statements is an essential role for financial
manager. The meaningful interpretation and analysis of balance sheets, income
statements, and cash flow statements to discern a company's investment qualities is
the basis for smart investment choices.

Monitoring and interpreting cash flows and predicting future trends- The cash flow
report usually monitored and interpreted by the Financial Manager is important
because it informs the reader of the business cash position. For a business to be
successful, it must have sufficient cash at all times. It needs cash to pay its expenses,
to pay bank loans, to pay taxes and to purchase new assets. A cash flow report
determines whether a business has enough cash to do exactly this.

Analyzing change and advising accordingly- Consequently, Financial Managers

primary responsibility is to help the organization and its financial resilience by
enhancing the company's capacity and ability to adapt to change. Every move in
terms of financing, investing and operating matters should be advised by the financial
manager accordingly.

Formulating strategic and long-term business plans- A strategic plan with key long-
term objectives serves as a framework for making decisions and provides a basis for
planning. Putting together a strategic plan can provide the insight needed to keep a
company on track by setting goals and measuring accomplishments. By analyzing the
information in the long-term plan, executives can make necessary changes and set the
stage for further planning.

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 Researching and reporting on factors influencing business performance- Factors
influencing changes in strategic management may be internal or external to the
business organization. Some of these factors an Financial Manager should be
researching or monitoring include management functions, structural transformations,
competition, socio-economic factors, laws and technology.

Analyzing competitors and market trends- The competitive analysis is a statement of

the business strategy and how it relates to the competition. The financial manager
needs to determine the strengths and weaknesses of the competitors within their
market, strategies that will provide them with a distinct advantage, the barriers that
can be developed in order to prevent competition from entering their market, and any
weaknesses that can be exploited within the product development cycle.

Developing financial management mechanisms that minimize financial risk-

Business establishments routinely face different types of risks in the course of their
operations. Risk stems from uncertainty of financial loss and can potentially cripple
the business if not managed in time. This demands that mechanisms to manage risk be
created via a risk management philosophy, with the objective of minimizing negative
effects risks can have on the financial health of the institution. In this way financial
manager’s role involves identifying potential risks in advance, analyzing them and
taking steps to diminish or eliminate them.

Conducting reviews and evaluations for cost-reduction opportunities- A financial

manager also prepares cost reduction program wherein it is a plan to cut expenses in
order to improve profits or cash flows. When a cost reduction program is intended to
counteract a short-term decline in operating results, it is more likely to be targeted at
discretionary costs, which are those costs that do not have a short-term impact on
company performance, such as maintenance and employee training costs. When the
cost reduction program is instead intended to counteract a longer-term decline in
results, the focus is on paring away products and programs that are less likely to
generate profits or cash flows over the longer term. A cost reduction program may be
combined with a strategic shift, where older product lines and programs are pared
back in order to provide funding for the new direction of the business.

Managing financial accounting, monitoring; reporting systems and producing

accurate financial reports to specific deadlines; and liaising with auditors to ensure
annual monitoring is carried out - Accountability is a key feature of the financial
systems. The budget is the financial plan for the year and it is essential for the
financial manager to monitor actual progress against this plan to ensure that the
desired fiscal result will be achieved. The monthly reports are the main tool of
financial control enabling cost centers to monitor income and expenditure against
budget.

Developing external relationships with appropriate contacts, e.g. auditors,

solicitors, bankers and statutory organizations - Although financial managers
should try to build and maintain good working relationships with everyone, there are
certain relationships that deserve extra attention.

For instance, if it will likely benefit from developing good relationships with key
stakeholders in the organization. These are the people who have a stake in your

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success or failure. Forming a bond with these people will help the business to ensure
that finances, projects and other matters, stay on track.

Managing budgets and arranging new sources of finance for a company's debt
facilities- Aside from managing budgets, financial managers should look venues for
obtaining funds that come from outside an organization. External sources of finance
might include taking on new business partners or issuing equity or bonds to create
long term obligation, or commercial paper to take on shorter term debt.

Keeping abreast of changes in financial regulations and legislation- New laws,

regulations and public expectations have pushed governance and compliance even
higher up the boardroom agenda. Financial managers everywhere recognize it’s
essential to make sure their companies have effective, robust and reliable governance
and financial compliance tools, and use them.

Financial managers may be employed by small to medium-sized enterprises (SMEs),

where they may be responsible for a wider range of activities.

Self-employment is also possible, as a consultant providing financial advice to a range

of businesses. This is usually only possible with a significant amount of experience.
(https://www.prospects.ac.uk/job-profiles/financial-manager#skills)

Learning Competency:
Explain the flow of funds within an organization – through and from the enterprise—and the
role of the financial manager, (ABM_BF12-IIIa-5)- Quarter 1, Week 1& 2

Exercise 1. SENTENCE ANALYSIS

Directions: Read the following statements below and identify whether:
A- Both statements are TRUE C- 1st statement is TRUE; 2nd statement is FALSE
B- Both statements are FALSE D- 1st statement is FALSE; 2nd statement is TRUE

_____1. (a) A statement that shows the changes in the cash and bank balance between
opening and closing dates is known as a cash flow statement; while (b) a statement that
shows the variations in the financial position between the two financial years is known
as a fund flow statement.

_____2. (a) Fund Flow Statement examines the firm’s efficiency in utilizing the working
capital. (b) Conversely, Cash Flow Statement analyses the cash generating efficiency of the
entity.

_____3. (a) Cash Flow statement is a part of Financial Statement. (b) Fund Flow Statement is
part of the Balance Sheet.

_____4. (a) Fund Flow Statement is helpful to a long-term analysis of financial planning; (b)
while Cash Flow statement is useful for a short term financial analysis of cash planning.

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_____5. (a) Cash flow statement contains opening and closing balances of cash and cash
equivalents. (b) On the contrary, fund flow statement does not contains opening and closing
balances of cash and cash equivalents.

_____6. (a) Fund Flow statement uses non- cash basis of accounting. (b) On the contrary,
Cash Flow statement uses the Accrual Basis of Accounting.

_____7. (a) Fund Flow Statement shows the sources and application of funds, (b) but Cash
Flow statement shows the inflows and outflows of cash.

_____8. (a) A fund flow statement is a statement showing the changes in the financial
position of the entity in the current accounting year. (b) A cash flow statement is a statement
showing the inflows and outflows of cash and cash equivalents over a period.

_____9. (a) Fund flow statement is prepared to show the reasons for the changes in the
financial position, with respect to previous year and current accounting year. (b) Cash
Flow statement is prepared to show the reasons for movements in the cash at the beginning
and at the end of the accounting period.

_____10. (a) Cash flow refers to the current format for reporting the inflows and outflows of
cash, (b) while funds flow refers to an outmoded format for reporting a subset of the same
information.

Exercise 2.
Directions: Read the following ACTIVITIES and identify whether it is INFLOW,
OUTFLOW or NO FLOW type of transaction. Write your answer on the space provided for.

ANSWERS ACTIVITIES
1. Interest received from making loans
2. Payments to acquire inventory
3. Conversion of debentures into shares
4. Payments to lenders and other creditors for interest
5. Sale of property, plant, and equipment
6.Cash paid purchase available-for-sale and held-to-maturity
securities
7. Purchased of fixed assets by issue of shares
8. Cash paid to make long-term loans to others.
9. Payments of cash dividends or other distributions to owners
10. Repayments of amounts borrowed.
11. Purchase or sales of marketable securities
12. Cash received from issuing capital stock and bonds,
13. Cash received from mortgages, and notes, and from other short-
or long-term borrowing.
14. Payment of taxes.
15. Payments of Registration Fee at the Securities and Exchange
Commission.
Exercise 3.

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 Directions: Assume that you were to hire a qualified Financial Manager that best suits
your standards as owner of an enterprise. Based on the Role of the Financial Manager
given, formulate JOB SPECIFICATIONS (what are the qualities and qualifications of
a Financial Manager you are looking for) and JOB DESCRIPTIONS (duties you want
the Financial Manager to perform.)
Please use the format below for your answer:

FINANCIAL MANAGER

Example: Example:
Holder of NC3 in Bookkeeping In- charge in the over- all financial
matters of the company.
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

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 Note: May opt to change the number of items depending on the teacher’s decision.
Checking/ scoring will be prerogative of the teacher. (Matching of answers on the
required/ direction)

Exercise 4.
Directions: Find out the terms relating to ‘The Flow of Funds and the Role of the
Financial Manager by analyzing the pictures given. Write your answer in the box
provided for.

N E O S
11
1 2

A G A E
11
3 4

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 A I I S

5 6

E R E U S

7 8

A E E E

9 10

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 Exercise 5.
Directions: Below is a picture of a Cash Flow within and through the Enterprise.
Explain the title/phrase ‘Cash Flow-How it works to Keep your Business Afloat’
based on your interpretation about the flow of funds. Write your answer below.

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_____________________

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 RUBRIC for SCORING

INDICATORS POINTS
1. Content relevance 25
2. Organization of Thoughts 15
3. Grammar and composition 10
Total 50
points

Reflection:
Complete this statement:

What I have learned in this activity

______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_________.

References:
 Business Finance Teachers Guide
 (https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-
brief)
 (www.kullabs.com)
 (keydifferences.com)

 (https://www.accountingtools.com/)
 dryrun.com
 https://www.thebalancesmb.com/cash-flow-how-it-works-to-keep-your-
business-afloat-398180

Answer Key

Exercise #1
1. A 6. B
2. A 7. A
3. C 8. D
4. A 9. A
5. A 10. A

Exercise 2:
1. Inflow 4. Outflow 7. No flow
2. Outflow 5. Inflow 8. Outflow
3. No flow 6. Outflow 9. Outflow

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 10. Outflow 12. Inflow 14. Outflow
11. No flow 13. Inflow 15. Outflow

Exercise 3. (Answers may vary)

-JOB SPECIFICATION -JOB DESCRIPTION

Exercise 4.
1. INCOME 6. BUSINESS
2. PROJECTIONS 7. PERFORMANCE
3. SAVINGS 8. FUNDS
4. PAYMENT 9. FINANCE
5. PLANNING 10. INCREASE

Exercise 5. Answer may vary.

Prepared by:

BRIAN S. INCOGNITO
Claveria School of Arts and Trades

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