`Fund Flow Statement (FFS) & Cash Flow Statement (CFS)

Fund Flow Statement

Fund – normally cash or wealth

- Cash in short term, working capital in long term

- CFS – Cash
- FFS - Working Capital (WC)

What does it show

- Depicts the flow of WC/funds during a specific period of time

- Variation in WC during a period is revealed
- Cross transactions – current a/cs & non-current a/cs are involved – which lead to changes in
WC – leading to increase or decrease of available funds
- Helps ascertains inflow (sources) and outflow (application) of funds

Why do we make it / Objectives

- To determine where we got the funds/WC from and where we used between 2 BS dates
- Highlights strengths and weakness and helps in course correction
- Gives us reasons for change in WC
- Helps management, investors
- Helps assess impact of business transactions

Advantages of FFS

- Helps in Analysis of Financial Operations – net effect of business txns on operational (P&L)
and financial (BS) status
- Tries to solve many confusing questions like
o Why NCA is low despite higher profits and vice versa
o Why dividend distributed was less despite higher/reasonable profits
o How the company managed to distribute more dividend than profits
o What happened to Net Profit
o Utilisation of receipts from sale of FA and issue of debentures
o How funds were raised for repayment of debt
- Helps in formation of reasonable dividend policy
- Acts a future guide
- Helps in improving use of WC

Disadvantages

- Fails to disclose cash position – we need CFS for that

- Simply rearrangement of data which reveals vital info hidden in P&L & BS
 - Historic in nature - lacks any prediction / indication to future – can be used as basis for
estimates
- Little or no use in isolation – needs to be analysed along with P&L & BS

How do we prepare FFS

- WC - Schedule of changes in WC
- Calculation of FFO (adj P&L a/c)
- Statement of sources and application of funds

Working Capital = Current Assets – Current Liabilities

Working Capital also called as revolving or circulating capital or Short-term capital

Amount of funds necessary to cover the cost of operating the business

Gross WC refers to CA CA refers to cash & assets which may be converted to cash within a
yr

Cash/ bank balances, BR, Debtors, ST L&A, Inventories. Prepaid Exps, Accrued Incomes, Temp invt of
surplus funds

Net WC = NCA = CA-CL CL need to be paid back within a yr

BP, AP, Creditors, Accrued or OS Exps, ST L&A, Dividends payable, Bank OD, Provision for tax

1. Schedule / Statement of Changes in Working Capital

o Prepared to get info about changes in each item of CA & CL and their impact on WC

Particulars Previous Yr Current Yr Effect on/ Changes in WC

Rs Rs Increase in WC Decrease in WC
Current Assets
- Cash in Hand
- Cash at Bank
- Bills Receivable
- Sundry Debtors
- Temp Investments
- Stock / Inventories
- Prepaid Expenses
- Accrued Income
Total Current Assets
Current Liabilities
- Bills Payable
- Sundry Creditors
- Outstanding Exps
- Bank OD
- ST Advances
- Dividends Payable
- Proposed Dividend
 - Provision for Taxation
Total Current Liabilities
Working Capital (CA-CL)
Net Increase / Decrease in WC

2. Computation of FFO
FFO is adjusted Profit – i.e. profit from core business operations – sole source of internal funds
Net Profit adjusted for Non Fund items (non-operating expenses & non-operating income) by
preparing Adjusted P&L a/c

Dr Adjusted Profit & Loss Account Cr

Particulars Rs
To Depn & Amortisation
To Appropriation of retained earnings
(trf to general reserve, sinking fund)
To Loss on sale of non-current assets
To Dividends
To Proposed dividend (if not taken as CL)
To Provision for Tax (if not taken as CL)
To Closing Balance of P&L a/c
To Funds lost in Operations (bal fig)
Xx
Particulars Rs
By Opening Balance (P&L A/c)
By Trf from Excess Provision
By Appreciation in value of fixed assets
By Dividend Received
By Profit on Sale of non-current asset
By Funds from Operation (bal fig)
Xx

3. Statement of Sources and Uses of Funds (FFS)

FFS indicates various sources and usage of funds (WC) during a certain period of time

Fund Flow Statement (for the year ended…..)

Inflow/ Sources of Funds Rs Outflow / Uses of Funds Rs

Funds from Operations Funds lost in Operations
Issue of Share Capital Redemption of Preference Share Cap
Issue of Debentures Redemption of Debentures
Raising of LT Loans Repayment of LT Loans
Receipts from partly-paid shares Purchase of Non-Current Assets
Sale of non-current assets Purchase of LT Investments
Non-trading receipts like dividend Non-Trading Payments
Sale of LT investments Payment of Dividends (only when
Net Decrease in WC appropriation of profit and not CL)
Payment of Tax only when
appropriation of profit and not CL)
Net Increase in WC
Xxx xxx