Importance of Fund Flow Statement

Importance of Fund Flow StatementIn this article, I will talk about the Fund Flow Statement importance which is a statement of sources and use of funds. It highlights the changes in financial position of a business involving two dates.

Financial statements do not provide the complete financial information. The objective of creating this statement is to find out from where funds are coming and where they are being invested.

Significance / Importance of Fund Flow Statement

1. It shows the various sources and uses or applications of funds between the two accounting periods.

2. Fund flow statements assist in determining the shift in amount of current assets investment and current liabilities financing.

3. It works as a crucial instrument for allocation of resources of a firm. It allows an organization for making plans for optimal allocation of resources.

4. It highlights the financial power and weak spots of a firm.

5. It help the investors to determine about how the company has employed the funds given by them & its financial strength. Based on comparative study of the past with the present, investors can identify & discover potential drains on funds in the future.

6. It assists the management to take remedial measures in case of deviations between two balance sheet figures.

7. It helps the investors for effective decisions at the time of their investment proposals.

8. It also offers detailed information concerning profitability, operational efficiency and financial matters of a firm.

9. It explains the connection between changes in working capital & net profits. Funds flow statements reveals the quantum of funds produced by operations.

10. It demonstrates the firms’ capacity to generate long-term financing to meet the investment in long-term assets.

11. It functions as a guide to the management to prepare its dividend, retention and investment policy, etc.

12. It helps to assess the financial implications of business transactions associated with operational finance and investment.

13. It helps the management to predict the requirements of extra capital.

14. The information provided by a this statement is much more trustworthy, reliable & consistent because it is prepared to include funds generated from operations and not net profit after depreciation.

15. It assists in finding out the firms’ capacity to pay interest and dividend, and pay debt when it becomes due.

Watch a video on Funds Flow Statement

Fund Flow Statement is significant as it analyzes the adjustments in financial position of an organization featuring the sources and applications of its funds.

It offers valuable information in regards to the company’s working, funding and investing activities within a particular period. It is a crucial instrument employed in analyzing a firm’s overall performance.

This statement can be used by individuals when thinking about investing in a company. It displays problems an organization has if the cash flow is unfavorable.

These statements are prepared as often as required. Small business owners prepare them on a regular basis, usually monthly, every quarter and yearly. Bigger companies usually prepare them more infrequently, typically quarterly and yearly.

This article talks about what is the significance and importance of fund flow statement? From the above points it becomes quite clear that the funds flow statement has several uses and objectives.

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