Presentation on Fund

Flow statement

Presentation on Fund Flow statement

Group 7: Vennela Algom, Parimi Asha Devi, Arjun,

Goutam, Rajesh Kumar
 Fund flow statement

• FUND – It has variety of meanings such as Cash fund,

Capital fund, Net Working Capital
• FLOW- It refers to changes or transfer
• Therefore the ‘’Flow of Funds’’ means transfer of
economic values from one asset to another, from one
liability to another vice- versa., So increase or
decrease in Net Working Capital.
 Fund flow statement

Definition
A fund flow statement is a statement prepared to analyse the reasons for
changes in the financial position of a company between two balance
sheets.
It portrays the in flow and out flow of funds i.e., sources of funds and
applications of funds for a particular period.
And also it is prepared to explain the changes in the ‘Working Capital’ of
a company.
 Financial
position
Company
analysis

Management

Importance

Changes in
assets and
liabilities

Credit
worthiness
 Objectives of fund flow statement

1. Explains the Changes in the Financial

Position

2. Analyzing the operational position of the company

 3. Helps in proper allocating of the resources

4.To evaluate the financial withstanding of the

company

5. Fund flow statement acts as a future guide

 Explains the financial consequences
of business
Uses Of Fund Debt capital is essential for increased
Flow Statement profits
Acts as an instruments for allocation
of company's resources
Test for evaluating use of working
capital by the management
information.
 Limitations Of Funds Flow Statement
• The main limitations of fund flow
1. Fund flow statements provide additional information regarding changes in working
capital. They are not replacements for income statements or balance sheet.
2. Although cash inflows and out flows are shown in a fund flow statement, no
information Is given about the reasons for this
3. As a matter of fact a fund flow statement is simply a rearranged statement of
financial data
4. Fund flow statements are historical in nature as they are the outcome of old
financial data, which are simply a window dressing.
5. Fund flow statements can sometimes be misleading especially when an analyst
does not know the reality and the soundness of the figures from which they are
computed
Scientific methods for the preparation of
fund flow statement
Fund flow statement

Schedule change in Statement of uses and

Funds from operation
working capital sources of fund
 Figure showing flow of fund

• Current Liabilities • Current Assets

Creditors, Debtors,Bill
Bills Payable,
Out standing
Receivable,
Expenses Notes

Building,
Equity
Plants,
Shares,
Equipment,
Debentures
Furniture
• Non Current Liabilities • Non Current Assets
 Schedule changes in working capital

Previous Current year Increase in Decrease in

year Rs. Rs. working capital working
Rs. capital Rs.
A. Current Assets
1. Stock
2. Debtors
3. Bills Receivable Cash/Bank
4. Prepaid Expenses Accrued Incomes
5. Marketable Investments

B. Current Liabilities
1. Creditors
2. Bills payable
3. Outstanding expenses Bank overdraft
4. Provision for Doubtful Doubts
5. Provision for Discount on Debtors
Unclaimed/Unpaid Dividend
Working Capital : (A-B)
Increase or decrease in working capital
Total
Working capital is calculated based on Current Assets and Current
Liabilities

After deduction of Current Liabilities from Current Assets, Working

capital is calculated

Increase in Current Assets with Current Liabilities at constant, there

is an increase in Working Capital, leading to direct relationship

Decrease in Current Assets with Current Liabilities at constant, there

is an decrease in Working Capital, leading to indirect relationship
 Funds from operation

Funds from operations refers to the profit earned or loss incurred from the regular
business operation
The ascertainment of funds from the operation is vital for the preparation of fund
flow statement
Funds from operations (FFO) is nothing but operating Net Profit is calculated by =
Net Profit (+) Non Operating Expenses (Depreciation, Provision for taxation, Loss on
sale, Interim divident, Preminum on Redemption, Discount on issue of shares or
deventures) (–) Non Operating Income (Profit on sale of machinery, Rent etc)
If its positive trend called as Funds From Operation
If its negative called as Loss from Operation
FFO (Sources) are more and LFO (application) are less, there is an increase in
working capital
FFO (Sources) are less and LFO (application) are more, there is an decrease in
working capital leading to less money
 Preparation of Fund flow statement
Fund flow satement has two parts:
1. Sources of Fund
2. Application of Fund

 The difference between these two parts that is sources and uses of funds
represents net changes in working capital

 Excess of sources of funds over uses of fund is the net increase in working
capital and excess of uses over sources of fund is net decrease in working capital

 The amount of net increase or decrease as fund flow statement should be equal
to be amount shown by schedule of working capital changes
 After recognizing the funds/loss from operations, fund flow statement is prepared, which will show

the net increase or decrease in the working capital

 Basically, any change in the assets and liabilities may result in the inflows and outflows of funds, but

not always, as in case of depreciation or revaluation of assets, there is no inflow or outflow of funds

 Hence, only those assets or liabilities will become a part of the statement, which actually leads to

the flows of the fund to/from the business

 Conclusion
Gives information about amount of working capital and changes in the
amount of working capital
It analyses Balance sheet to reveal the financing & investing activities
It analyses the Profit & Loss Account to reveal the effect of business
activities of the concern on the flow of funds
It is a tool for planning future activities of business
Thank You