Fund Flow Statement
Fund means working capital and flow means inflows or outflows or in other words simply means changes. The detail of all the financial resources and the procedures in which these resources are used that will be given in statement is called fund flow statement. We have to prepare a statement in which we measure the working capital and changes that occurs during the fund flow statement. In this statement we can measure the change that occurs in the working capital and also we can conclude the reason behind the changes that may appear in the working capital. There is a huge profit a company has at certain time but with that bulk of money the company still is in liquidity phase that means they are getting enough profit but it seems that company has no profit present. This is because of the change in the working capital.
If we earn four lakh from our shop and utilize all the profit that we earn in the same business this is how if we earn profit it seems we earn nothing. Profit is operational factor that brings changes in the working capital. There is also some other non-operational factors that also creates changes in the working capital.
Basically fund flow statement is studied to measure the changes that occur in the working capital and effects that cause these changes. There are two types of factors;
- Operational Factors
- Non-operational Factors
Fund flow statement guides to solve the liquidity problem of the firm even about the earning profit. In which we measure the transaction between current account and non-current account that results in the flow of fund. Fund is working capital in which we can calculate the inflow and outflow of the money. Fund flow statement is the measure of the financial resources that helps the company to generates the profit and aware from the different operational and non-operational factors.