The term funds may refer to either of two things: Cash will include cash at bank, cash in hand, and perhaps short-term investments; while working capital is the excess of current assets over current liabilities. The preparation of a fund flow statement depends on which of these meanings of the term fund is being applied. A fund flow statement, where "fund" is taken to mean cash resources, shows the causes that lead to a movement in cash items over a given financial period. Such a fund flow statement is more commonly known as a cash flow statement. On the other hand, a fund flow statement that is prepared based on a definition of "fund" as meaning working capital shows the causes that lead to a movement in current assets and liabilities over a given financial period. The term fund flow statement is more commonly used for a statement that traces movements in working capital items, rather than just cash resources. Until recently, smaller businesses (e.g., sole proprietorships and partnerships) used to prepare cash flow statements while larger businesses (e.g., joint-stock companies and, in particular, public limited companies) commonly prepare fund flow statements. However, the present trend is to prepare cash flow statements regardless of the size of the business. In other words, fund flow statements are gradually falling out of use.
Funds FAQs
Cash flow statement
It's a financial statement that shows how a company's cash flows between its operating, investing, and financing activities. This statement can help investors understand a company's ability to generate cash and make decisions about where to allocate their capital.
A funds flow statement is important because it provides insights into a company's liquidity and financial health. It can help investors determine whether a company can cover its expenses, repay its debts, and make future investments.
The main sources of cash listed on a funds flow statement include cash from operations, cash from investing activities, and cash from financing activities. However, there may be other sources of cash that are not listed, such as proceeds from the sale of assets.
Fund flow statement is historic in nature and shows the evaluation of a company's financial status based on its past performance. It cannot be used by itself, as it provides only information regarding the change in Working Capital; it must be used in conjunction with the balance sheet and the profit and loss account.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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