Introduction to Fund Flow Analysis
What is Fund flow analysis? Let us have a look at this - we know traditionally balance sheet and profit and loss statements are prepared - Balance sheet would communicate what is the financial position as on a particular date and profit and loss statement would communicate what is the book profits that are generated during the year. But the problem is both the statements do not communicate directly as to what is the movement in sources and uses of funds. In business funds will be mobilized from various sources and it will be used for various purposes but what is the movement?
How much funds have been mobilized how much has been utilised during the year- that moment will not be communicated by the financial statements - so we go for supplementary statement called fund flow statement.
This is not a mandatory document like statement of profit and loss balance sheet but it is prepared mainly to understand the movement of funds - lets have look at this - why Movement in sources and uses of funds are important?
If your business carry more long term funds - what is the benefit?