Financial statements are necessary paradormirmejor.org for companies to keep track of their company’s economic health. Such documents also help business owners make strategies for the future with regard to mergers, acquisitions, investments, and so on. The role of a financial analyst is indisputable in such matters.
Two such essential components of financial analytics are cash flow statements and fund flow statements. While both might sound the same, in reality, these two statements have different features and provide different kinds of advantages to businesses.
In this article, we will dive into what cash flow statements and fund flow statements are, their advantages, and the key cash flow vs. fund flow differences to offer a comprehensive view.
Keep reading to learn more!
What is Cash Flow Statement?
The cash flow of a company refers to its inflow and outflow of cash and cash equivalent. A cash flow statement is a recording of this money flow to and from the company.
A cash flow statement is one of the most important pieces of financial statements recorded by financial analysts in order to gauge a company’s current liquidity and help make decisions regarding investments. It also helps keep track of changing opening and closing cash balances.
Cash flow statements are created for specific time periods, like, quarterly, semi-annually, or annually. The primary components of cash flow statements are:
- Cash flow from investing activities
- Cash flow from operating activities
- Cash flow from financing activities
Advantages of Cash Flow Statement
The primary advantages of a cash flow statement are:
- It helps in assessing the profitability of a business.
- It helps in assessing company balance sheets and profit and loss statements.
What is Fund Flow Statement?
Fund flow signifies the working capital of an enterprise. Thus, a fund flow statement tracks and records the net movement of funds in and out of the enterprise.
Fund flow statements are ideal for long-term financial planning. Furthermore, irregularities in company funds can be identified through fund flow statements. In addition to helping monitor the working capital of a business, fund flow statements also aid in capital budgeting.
The main components of working capital that form a part of fund flow statements are:
Advantages of Fund Flow Statement
The following advantages are attributed to a fund flow statement:
- It helps company owners and managers understand how efficiently funds are being allocated and utilised within the company. This information can help further optimise the process.
- Fund flow statements are useful in deducing the fund-generating capacity of any business. This data can be handy while making future financial decisions.
- Fund flow statements also help improve resource usage and better allocation of limited resources.
Key Differences Between Cash Flow Statement and Fund Flow Statement
While cash flow and fund flow statements are crucial parts of a company’s finances, they have some differences. Those differences are discussed below:
|Cash Flow Statement||Fund Flow Statement|
|Denotes the inflow and outflow of cash and cash equivalent over a given period of time.||Denotes the changing working capital of a company over a given period of time.|
|Helps in deducing the net cash flow of a business.||Helps in deducing the financial position of a business.|
|Is used for cash budgeting.||Is used for capital budgeting.|
|Part of a company’s financial statement.||Not part of a company’s financial statement.|
|Documents the inflow and outflow of cash and change in opening and closing balance of cash.||Documents the source and application of a company’s funds.|
|All kinds of disclosures regarding the inflow and outflow of cash are mandatory.||Helps disclose the source and application of any given fund.|
|Aids in short-term financial decision-making or planning.||Aids in making long-term financial plans and decisions.|
To conclude, both cash flow statements and fund flow statements are essential for companies to understand their current financial position and strategise for the long term.
Both these statements come with their advantages and features; hence, neither can be ignored while making financial decisions. Therefore, companies are always on the lookout for trained financial analysts who can prepare and track such statements and help make the most effective economic decisions.
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