One of the most important techniques of financial analysis is a preparation of funds flow statement. It is the statement which portrays the changes in the financial position of an enterprise. Balance sheet and income statement do not present a comparative picture, even if placed side by side in that much clarity as the statement of changes in financial position which focuses on the sources and uses of funds.
Funds flow statement is a technical device designed to highlight the changes in the financial condition of a business enterprise between the opening and closing balance sheet dates. The flow of funds results in mainly profits of a business due to business operations. And as has been well said that “a business with an income at it heals furnishes always oil for its own wheels”, it is the profit which becomes main sources of funds for a business. However, profitable companies can also be anemic with respect to working capital and since working capital is the life blood of an enterprise, its shortage can disturb the operating cycle of the business. It is this concept of ‘funds', the flow which is to be examined in detail as to its sources and applications so as to know the net increase or decrease in working capital over a period of time, usually a year.
[...] Concept of funds flow statement: The meaning of funds flow or flow of funds illumination the concept of funds flow statement clearly the statement which analysis the flow of funds that is the reasons for changes in working capital is a funds flow statement. The reasons are set by the sources and application of funds and therefore the statement can be called as the statement of sources and application (uses) of funds. Some accountants prefer to call it in short as fund and to which place have gone. [...]
[...] Statement of sources and Applications PARTICULARS AMOUNT PATICULARS AMOUNT Sources of funds Application of funds Funds from trading Funds costs in operations Factitively or Operating profit Repayment of debentures Issue of shares and debentures Reduction in share Capital Sale Proceeds of Non- Interest and dividend paid current asset Long- term Payment of Long term loans Borrowings Decrease in working Increase in working capital Capital One of the valuable aids to the financial manager or the creditor is funds flow statement, with which evaluates how a firm uses funds and determines how these uses are financed. [...]
[...] It is statement of financial financial position. position 2. It show the amount of changes 2. It present the amount of assets during the particular period of and liabilities at a particular time. point of time 3. It doesn't analyze the change 3. It shows all the accounting in current asset and current liabilities whether current or liability. non-current 4. It is a analytical statement 4. It is not a analytical statement analyzing form where they have been hence not that much useful for used, hence more useful. [...]
[...] A statement of funds received and expanded a statement of changes in financial position or sources and application of funds in which elements of net income and working capital contributing to an understanding of the whole of financial operation during the reporting period replace total of these items. Need and Importance of funds flow statement: The information which is provided by funds flow statement is neither available in the balance sheet nor in the income statement and hence it's important. [...]
[...] In the total funds flow was received and was received from unsecured loans was received from secured loans(vehicles). Regarding the application of funds used for repayment of unsecured loans and used for purchase of fixed assets funds used for working capital constitution respective. CONCLUSION: It is concluded that during the period 2005-06 more than of the funds came trading activities in the application of funds around of the funds utilized for investing in fixed assets. And used for repayment of unsecured loans. [...]
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