What is a Funds Flow Statement?

The funds flow statement illustrates how money moves through a company over time. It draws attention to the sources of funding, such as earnings or borrowings, as well as the uses of those funds, such as asset purchases or loan repayments. The statement gives a comprehensive picture of resource management and concentrates on changes in working capital. In addition to providing helpful insights for planning, decision-making, and funds flow analysis, it facilitates funds flow management. 

Importance of Fund Flow Statements 

A fund flow statement helps management make well-informed decisions by giving them a clear picture of how money circulates inside a company. 

• Provides information about the company's long-term financial situation. 
• Aids efficient organising and managing the flow of money. 
• Keeps precise track of the sources and uses of funding. 
• Explains how working capital fluctuates over time. 
• Provides thorough funds flow analysis to aid in decision-making. 
• Demonstrates the financing of new or expanded projects. 
• Improves resource management and financial planning in general. 

Key Components of a Fund Flow Statement 

After learning what is fund flow statement meaning, knowing its key components makes it easier to understand where and how money is used. 

1. Sources of Funds: Includes funds from operations, issues of shares, long-term borrowings, and sale of fixed assets. 
2. Application of Funds: This includes dividend payments, loan repayment, and the acquisition of fixed assets. 
3. Variations in Working Capital: Indicates whether current assets and current liabilities are rising or falling. 
4. Statement of Changes in Working Capital: A supporting schedule that describes the differences between two accounting periods. 

A clear picture of the financial movement throughout the company is provided by each section of the funds flow statement. 

How is a Funds Flow Statement Prepared? 

A methodical approach ensures that any adjustments to money and working capital are appropriately documented. 

Step 1: Prepare comparative balance sheets for two accounting periods. 

Step 2: Calculate changes in working capital. 

Step 3: Determine funds from operations by adjusting net profit for non-cash and non-operating items. 

Step 4: Identify all sources of funds during the period. 

Step 5: Identify all applications of funds. 

Step 6: Prepare the final funds flow statement showing total sources and total uses of funds. 

Advantages and Disadvantages of Funds Flow Statement 

Knowing the strengths and limitations of a fund flow statement helps in using it effectively for decision-making. 

Conclusion 

The movement of financial resources inside a company over time is described in a funds flow statement. It focuses on working capital fluctuations as well as the sources and uses of finances. The report helps implement funds flow management choices and backs up funds flow analysis. Insights from a funds flow statement can be used by traders and investors examining firm fundamentals using an online trading app to evaluate long-term strategy and financial stability.