Distribution of funds and investment are the major financial activities of a business company. Different activities are made by the accounts department to analyse the cash flow. A fund flow statement is a major written document that focuses on the source and application of the funds in a given timeframe. It also indicates how the funds are collected from various sources, including the issuance of shares. In this way, this also discusses the application of funds in terms of purchasing an asset. Its mean funds flow statement indicates the cash inflow and outflow of a specific duration by comparing the two-balance sheet.
A balance sheet is written evidence that evaluates the company’s financial position in terms of profit and loss. A balance sheet cannot describe the fluctuations in cash flow that a fund flow statement indicates. It is the responsibility of the firm management board to discuss the company’s financial position and performance with stakeholders. There are various financial analysis tools in which a fund flow statement is a major one.
What Is the Fund Flow Statement with Example?
A fund flow statement is a type of financial analysis tool of the company which specifies the fluctuation and movement of the cash flow. It compares the two-balance sheet and provides the source of funds included in a business. It also mentions the application of the fund in the form of investing in the ongoing business operations and purchasing assets. In this way, a fund flow statement analyses a company’s cash inflow and outflow with the complete details of how the funds are generated and applied in business operations. Without this written document, it is impossible to analyse the fluctuations and movement of assets and funds in a given year. Following is an example that clears the concepts.
|Funds Application and Source of Fund||2022|
|Source of Fund|
|Funds from operations||2000£|
|Funds from Shares||1000£|
|Total Source of Fund||3000£|
|Working Capital Increase||500£|
|Total Funds Application||1500£|
What Is the Importance of Fund Flow Statement?
A fund flow statement is a crucial written document for the company’s financial operations that analysis the company’s financial position. Followings are the important applications and features that demonstrate fund flow statement importance;
- It provides a source of funding
- It indicates the application of fund
- Measures cash flow
- Provides investment details
- Indicates the capital investment in operations
- Evaluates the financial strengths and weaknesses of the company
- Provides information to plan future investment
- It elaborates on current liabilities
Above mentioned all are important financial activities that can be measured with the fund flow statement. These features indicate its importance while analysing the financial position of the company.
How Is Fund Flow Statement Prepared?
The fund flow statement of a company aims to check and present the change in cash flow. There are serval steps and points that are important to follow and prepare a well-structured statement. Although professionals get help from audit firms and students prefer to buy dissertations online to prepare audit reports, below are mentioned some important points:
- Provides the purpose of preparing a cash flow statement.
- Overviews of the needs and points to make the statement.
- Calculates and summarises the source of funds.
- Adds all the sources and mention the real source of funds.
- Mentions the amount received from operations.
- Indicates the value of share distribution.
- Analysis of all applications of funds.
- Indicates how much cash is allocated for asset purchasing.
- Evaluates the amount used in capital enhancement.
- Assesses the change in cash flow with fluctuations.
- Practically start to work on the fund flow statement.
- Puts all the values in the relevant column.
- Makes a sum of fund source and application.
What Are the Four Sources of Fund Flow Statement?
The importance and points of preparing a good fund flow statement provide its sources. All those activities that are part of fund generation and application are the sources of the fund flow statement. Following are four main sources that are an essential part of a fund flow statement.
Operations Cash Flow
Cash received from operations is the first source of income that enhances the cash flow in the fund flow statement. It is the source to boost the cash inflow of the statement. Operations cash flow shows the company’s income from sales and other financial activities.
Cash Received from Shares
When a company faces investment issues to grow in the market, sales of shares are a better option to get cash for investment. It is the second source of fund flow statement that provides details about the received amount and change in the total investment.
Investment activities are the source of a fund flow statement that analyses the cash outflow. It shows how much amount is used to increase the working capital. It is also an important source to evaluate the company’s financial position and its capability to invest for future growth. In this way, it is vital for a cash flow statement to complete effectively.
Assets purchasing is the last source of fund flow statement that provides financial details of purchasing an asset. It helps make the company worth and reputation to stay in the market and provides a great net value for the company’s assets. When a company has fixed assets and the capacity to invest, individuals buy more shares due to its strong financial position. In this regard, asset purchasing is a major source of fund flow statements.
A fund flow statement is a major financial analysis tool that delivers all changes and fluctuations related to the source and application of funds. It is important to evaluate the cash inflow and outflow of a company. There are various sources of fund flow statements, but operations cash flow and asset purchasing are vital to prepare it efficiently.