MEANING & OBJECTIVES OF FUND FLOW STATEMENT ANALYSIS - Accounts and Finance for Managers

A report on the movement of funds or working capital. In a narrow sense the term fund means cash and the fund flow statement depicts the cash receipts and cash disbursements/ payments. It highlights the changes in the cash receipts and payments as a cash flow statement in addition to the cash balances i.e., opening cash balance and closing cash balance. Contrary to the earlier, the fund means working capital i.e., the differences between the current assets and current liabilities.

The term flow denotes the change. Flow of funds means the change in funds or in working capital. The change on the working capital leads to the net changes taken place on the working capital i.e., especially due to either increase or decrease in the working capital. The change in the volume of the working capital due to numerous transactions. Some of the transactions may lead to increase or decrease the volume of working capital. Some other transactions neither registers an increase nor decrease in the volume of working capital.

According Foulke “A statement of source and application of funds is a technical device designed to analyse the changes to the financial condition of a business enterprise in between two dates”

Various Facets of Fund flow statement are as follows:

• Statement of sources and application of funds
• Statement changes in financial position
• Analysis of working capital changes and
• Movement of funds statement

Objectives of Funds Flow Statement

Objectives of fund flow statement analysis:

1. It pinpoints the mobilization of resources and the further utilization of resources
2. It highlights the financing of the general expansion of the business firms
3. It exemplifies the utilization of debt finance in the structure of financing
4. It portrays the relationship between the financing, investment, liquidity and dividend decision of the firm during the given point of time.