Fund Flow Statement

Fund flow statement is a statement that reflects the relative position of funds of the company over a two-period horizon and enables analysis of sources and uses of funds for a particular period of time. A fund flow statement highlights about where the funds have been generated and to what it has been put for use. This statement is also known as sources and application of funds.

Sources of Funds in Fund Flow Statement

The sources of funds would include the following:

Issue of Shares and Debentures For Cash

Only fresh issue to be considered as inflow and not the case where bonus shares are issued as they do not generate any fresh inflow.

Sale of Assets

The amount received on sale of fixed assets is to be considered as a source of fund. Inflow on a sale of investments can also be considered.

Long Term Loans

Funds raised by way of long-term borrowing is to be considered as a source of funds; however funds rise by way of short-term loans will be captured under working capital changes.

Decrease in Working Capital

Working capital is current assets less current liabilities. A decrease in the net current assets leads to increase in fund flow which needs to be included.

Funds from Operations

This represents funds generated from operating activity of the firm and excludes funds generated from investment or financing activities of the business.

Fund Flow Statement

Application / Uses of Funds in Fund Flow Statement

The application of funds would include the following:

Redemption of Shares And Debentures

Premium if any paid also will have to be included in the outflow.

Purchase of Fixed Assets/ Investments

Any purchase made against shares or on credit shall not be included as outflows under this heading.

Repayment of Long-term Loans

Short-term repayment falls under working capital; only longer term which is not included in the short term would be a part of this.

Increase in Working Capital

This would arrive from changes in the working capital statement.

Dividend/Tax Payments

One has to ensure that dividend/tax payment provisions have not been included in the working capital statement else would amount to double counting.

Fund flow statement summarizes the list of sources made available to a firm to finance the activities and how these funds were utilized for the period under consideration. One can have a look at the difference between cash flow statement and fund flow statement to get further clarity. Also can have a look at the advantages and disadvantages o fund flow statement. 1

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Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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2 thoughts on “Fund Flow Statement”

  1. I would call them fun flow statements by the way you described them in such an easy manner. Kudos for including application of funds part in this post, I was looking through similar posts and was like why is nobody talking about it. I get easily lost in this terminology, thanks for explaining!

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