20547095 funds flow analysis

8/2/2019 20547095 Funds Flow Analysis

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Funds Flow AnalysisFunds Flow Analysis


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OverviewOverview

DefinitionDefinition Concept of Funds Flow AnalysisConcept of Funds Flow Analysis Significance of Funds FlowSignificance of Funds Flow Uses of Funds FlowUses of Funds Flow Types of preparation of Funds FlowTypes of preparation of Funds Flow

statementstatementAccounts to be preparedAccounts to be prepared Difference b/w funds flow and cash flowDifference b/w funds flow and cash flow


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DefinitionDefinition

It is a Statement summarizing theIt is a Statement summarizing the

significant financial changes which havesignificant financial changes which have

occurred between the beginning and theoccurred between the beginning and theend of the companys accounting period.end of the companys accounting period.


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Concept of Funds Flow analysisConcept of Funds Flow analysis

Indicates Changes in Financial ConditionIndicates Changes in Financial Condition

Difference from balance sheet and incomeDifference from balance sheet and income

statementstatement Supplementary to the above statementsSupplementary to the above statements

and not a substituteand not a substitute

Summarizes events taking place betweenSummarizes events taking place between

two accounting periodstwo accounting periods


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Significance of funds flowSignificance of funds flow

Helps shareholders, creditors and other toHelps shareholders, creditors and other toevaluate the uses of funds by theevaluate the uses of funds by the

enterpriseenterpriseAssists in analysis of past trends and thusAssists in analysis of past trends and thus

aid future expansion decisionsaid future expansion decisions

Helps finance managers in identification ofHelps finance managers in identification ofproblems, enabling detailed analysis andproblems, enabling detailed analysis andimmediate actionimmediate action


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Uses of funds FlowUses of funds Flow

Guides the management in deciding abut theGuides the management in deciding abut the

dividend and retention policiesdividend and retention policies

Planning for long term purposes is enabledPlanning for long term purposes is enabled It facilitates allocation of resources and fundsIt facilitates allocation of resources and funds

It also indicates the sources from which theIt also indicates the sources from which the

company has obtained its fundscompany has obtained its funds Factors resulting in change in working capitalFactors resulting in change in working capital

may also be ascertainedmay also be ascertained


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Types of preparation of fundsTypes of preparation of funds

flow statementflow statement Cash flow ApproachCash flow Approach

Total resources approachTotal resources approach

Working capital approachWorking capital approach


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Cash Flow ApproachCash Flow Approach According to this method, the word funds isAccording to this method, the word funds is

synonymous with cashsynonymous with cash Through this association, the funds flowThrough this association, the funds flow

statement turns into the receipts and paymentstatement turns into the receipts and paymentaccountaccount To prepare funds statement on cash basis, allTo prepare funds statement on cash basis, all

balance sheet changes taken place must bebalance sheet changes taken place must be

classified into either changes that increase cashclassified into either changes that increase cashor changes that decrease cashor changes that decrease cash All these changes must be classified from theAll these changes must be classified from the

income statement and surplus statement.income statement and surplus statement.


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Total Resources ApproachTotal Resources Approach Here, funds represents total assets or resources ofHere, funds represents total assets or resources of

the enterprise.the enterprise. All changes that result in increase or decrease inAll changes that result in increase or decrease in

assets and liabilities are shownassets and liabilities are shown

To prepare funds statement on total resource basis,To prepare funds statement on total resource basis,all balance sheet changes taken place must beall balance sheet changes taken place must beclassified into either inflow or outflow of fundsclassified into either inflow or outflow of funds

Inflow of funds consists earnings of the company,Inflow of funds consists earnings of the company,contribution of additional funds, increase in liabilitiescontribution of additional funds, increase in liabilities

and decrease in assets.and decrease in assets. Outflow of funds consists of net losses, decrease inOutflow of funds consists of net losses, decrease in

liabilities, decrease in capital funds and increase inliabilities, decrease in capital funds and increase inassetsassets


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Working Capital ApproachWorking Capital Approach In his method, funds is equivalent to the netIn his method, funds is equivalent to the net

working capital (current assets minus currentworking capital (current assets minus currentliabilities).liabilities).

The prime objective of this approach is to showThe prime objective of this approach is to show

movement of funds through working capital andmovement of funds through working capital andshed light on the factors contributing to suchshed light on the factors contributing to suchmovementsmovements

Two statement are prepared in this conceptTwo statement are prepared in this concept The first one is the schedule of working capital inThe first one is the schedule of working capital in

which changes in net working capital are recordedwhich changes in net working capital are recorded The second statement is the funds flow statement inThe second statement is the funds flow statement in

which the factors responsible for these variances inwhich the factors responsible for these variances inworking capital are shownworking capital are shown


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Accounts to be preparedAccounts to be prepared


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Statement of Sources andStatement of Sources and

Applications of FundsApplications of Funds(Funds Flow Statement)(Funds Flow Statement)


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Dr. Cr.

No. S o u r c e s A m o u n tR s .

No. A p p l i c a t i o n s A m o u n tR s .

( )1 C a p i t a lI n t r o d u c e d XX ( )1 D r a w i n g s o r C a p i t a lW i t h d r a w n

XX

(1) I s s u e o f S h a r e s a n d

D e b e n t u r e s

XX ( )1 R e d e m p t i o n o f

S h a r e s a n dD e b e n t u r e s

XX

( )1 P r e m i u m R e c e i v e d o nS h a r e s a n dD e b e n t u r e s

XX ( )1 P r e m i u m P a i d o nR e d e m p t i o n o f S h a r e sa n d D e b e n t u r e s

XX

(1) L o n g T e r m L o a n sT a k e n

XX ( )1 R e p a y m e n t o f L o n gT e r m Lo a n s

XX

( )1 S a l e o f N o n- C u r r e n tA s s e t s

XX (S) P u r c h a s e o f N o n-C u r r e n t A s s e t s

XX

( )1 N o n O p e r a t i n gP r o f i t s a n dI n c o m e s

XX ( )1 N o n O p e r a t i n gL o s s e s a n dE x p e n s e s

XX

( )1 D i v i d e n d R e c e i v e d XX ( )1 D i v i d e n d P a i d XX

( )1 R e f u n d o f T a x XX ( )1 I n c o m e T a x P a i d XX

( }1 R e d u c t i o n i n W o r k i n gC a p i t a l

XX ( )1 I n c r e a s e i n W o r k i n gC a p i t a l

XX

XX XX( )1 1 F u n d s f r o m O p e r a t i o n s

XX

( )1 1 L o s s o f F u n d s f r o mO p e r a t i o n s

XX


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Adjusted Profit & Loss AccountAdjusted Profit & Loss Account


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Schedule of Changes in WorkingSchedule of Changes in Working

CapitalCapital


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Schedule of Changes in Working Capital for year endedXX/XX/XX Balance as on Increase in

Working CapitalReduction in

Working Capital

/ /11111111 / /33333333

Particulars

Rs. Rs. Rs. Rs.Sundry DebtorsStockBills ReceivableCash on HandCash at BankOther Current Assets

XXXXXXXXXXXX

XXXXXXXXXXXX

Current Assets XX XX

Sundry CreditorsBills PayableLiability for ExpensesPDDOther Current Liabilities

XXXXXXXXXX

XXXXXXXXXX

Current Liabilities XX XX

Working CapitalIncrease/Decreasein WorkingCapital

XXXX

XXXX

XX XX XX XX


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Differences Between Funds FlowDifferences Between Funds Flow

and Cash Flowand Cash Flow


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Funds Flow Cash Flow

1. It is based on the overall1. It is based on the overall

concept of working capitalconcept of working capital1. It is cash based which is just one1. It is cash based which is just one

element of working capitalelement of working capital

2. Does not contain any opening2. Does not contain any openingor closing balancesor closing balances

2. Contains opening & closing2. Contains opening & closingbalance of cashbalance of cash

3. Indicates sources and uses of3. Indicates sources and uses of

fundsfunds

3. Indicates only cash inflows and3. Indicates only cash inflows and

outflowsoutflows

4. Not mandatory in India4. Not mandatory in India 4. Mandatory in India4. Mandatory in India

5. No set format to follow in5. No set format to follow in

preparationpreparation

5. To be presented as per AS-35. To be presented as per AS-3

statutory format given by ICAIstatutory format given by ICAI

6. Useful in planning intermediate6. Useful in planning intermediate

and long term financing purposesand long term financing purposes

6. Used by management for short6. Used by management for short

term financial analysis and cashterm financial analysis and cash

planning purposes.planning purposes.


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THE ENDTHE END

20547095 funds flow analysis

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