The Difference Between Fund Flow and Cash Flow Statement
Financial statements are one of the most critical tools for investors, creditors, and stakeholders to evaluate a company’s financial performance. Fund flow statement and cash flow statement are two financial statements commonly used in the business world. Although they have similar purposes, they are not interchangeable. In this article, we will explain the differences between fund flow and cash flow statement.
Fund Flow Statement
The fund flow statement is a financial statement that shows the inflow and outflow of funds or resources of a company during a given period. It helps stakeholders to understand the changes in the company’s financial position over a particular period. The fund flow statement reports how a company has obtained and used its funds, including sources of funds like equity, preference shares, debentures, retained earnings, and long-term loans. It also provides information on how the company has invested its funds, including purchases of new assets, repayment of loans, and payment of dividends.
A fund flow statement can help stakeholders to evaluate the long-term financial position of a company. It is used to determine the company’s ability to generate funds from internal and external sources and how these funds are used to finance operations, long-term investments, and debt servicing.
Cash Flow Statement
The cash flow statement is a financial statement that shows the inflow and outflow of cash during a given period. It reports on the company’s operating, investing, and financing activities. The cash flow statement shows how changes in balance sheet accounts, such as accounts payable and receivable, affect cash and cash equivalents.
The cash flow statement also provides information on how a company has generated and used its cash. Operating cash flow encompasses the cash generated by a company’s core business operations. Investing cash flow measures the cash spent on investments in property, plant, and equipment, and other long-term assets. Financing cash flow measures the cash inflows and outflows due to the repayment of loans, the issue of new debt, and the issuance of equity.
Differences Between Fund Flow and Cash Flow Statement
Although the fund flow statement and cash flow statement have similar purposes, the differences between the two are significant. The following are some key differences between the two:
– The fund flow statement shows how funds have been generated and used, while the cash flow statement shows how cash has been generated and used.
– The fund flow statement includes non-cash transactions like depreciation, while the cash flow statement does not.
– The fund flow statement covers a longer period, usually over a year, while the cash flow statement covers a shorter period, usually a quarter or a year.
– The fund flow statement reports on the changes in balance sheet accounts, while the cash flow statement tracks the inflow and outflow of cash.
Conclusion
In conclusion, although the fund flow statement and cash flow statement both report on a company’s financial position, they serve different purposes. The fund flow statement is a more comprehensive document that covers a more extended period and includes non-cash transactions. On the other hand, the cash flow statement focuses on cash inflows and outflows and is typically used to evaluate a company’s liquidity. By understanding the differences between the two, stakeholders can make more informed decisions about a company’s financial health.
Table difference between fund flow and cash flow statement
| Factors | Fund Flow Statement | Cash Flow Statement |
|---|---|---|
| Meaning | It shows the inflows and outflows of funds over a specific period of time and explains how the funds were used in the business. | It focuses on the inflows and outflows of cash during a specific period of time and explains how the cash was used in the business. |
| Objective | To help the investors and financial analysts understand the sources and utilization of funds in the business. | To help the investors and financial analysts understand how the company manages its cash and cash equivalents. |
| Components | It includes changes in working capital, capital expenditures, sales of assets, issuance of shares, and repayment of debts. | It includes operating activities, investing activities and financing activities. |
| Timing | It is prepared on an accrual basis, which means it considers both cash-based and non-cash transactions. | It is prepared on a cash basis, which means it considers only cash-based transactions. |
| Usage | It helps in assessing the long-term financial health of the company. | It helps in assessing the short-term liquidity of the company. |