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Cash Flow Statement Vs. Fund Flow Statement: Key Differences

Posted on June 10, 2024June 10, 2024 by Imarticus Learning

Financial statements are necessary 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, there is a difference between cash flow and fund flow, as these two statements have different features and provide different kinds of advantages to businesses.

In this article, we will dive into what is cash flow statement and what is fund flow statement, their advantages, and the key difference between cash flow and fund flow to offer a comprehensive view.

Keep reading to learn more!

What is Cash Flow?

The cash flow of a company refers to its inflow and outflow of cash and its 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.

The difference between cash flow and fund flow is that 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 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.

Disadvantages of Cash Flow Statement

The disadvantages of cash flow statement are as follows:

It provides an incomplete profit view since it excludes non-cash accounting items, resulting in a limited picture of profitability.
It cannot be used as a standalone tool and needs to be analyzed alongside other statements, such as the balance sheet and income statement.
It represents past cash flows and may not correctly reflect the current or future financial status.

What is Fund Flow?

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:

Inventory
Receivables
Cash
Payables

Advantages of Fund Flow Statement

Let’s look at the following advantages of 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.

Disadvantages of Fund Flow Statement

Below are the disadvantages of fund flow statement:

Fund flow statements deal primarily with historical data and do not provide real-time insights into a company’s current financial situation or future prospects.
Fund flow statements solely consider cash transactions and exclude non-cash elements such as depreciation or changes in non-cash working capital. This may give an imperfect picture of a company’s financial condition.
Fund flow statements can be complex, requiring an in-depth understanding of accounting principles to interpret them correctly. Interpreting the causes of fluctuations in fund balances can be difficult.

Key Difference Between Cash Flow and Fund Flow Statement

While cash flow and fund flow statements are crucial parts of a company’s finances, they differ. The difference between cash flow and fund flow 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 changes in the opening and closing balances 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.

Conclusion

After examining the difference between cash flow and fund flow, we can say that both statements are essential for companies to understand their current financial position and strategize for the long term.

Both of 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 understand the difference between cash flow and fund flow statements, prepare and track such statements, and help make the most effective economic decisions.

So, if you want to take advantage of this market demand, why not get enrolled in Imarticus’s financial analyst course? The Financial Analysis Prodegree course, in collaboration with KPMG, is one of the best in the market to offer you in-depth financial analyst training. Within a span of four months, you will be able to learn all the fundamentals of financial analytics from industry experts, get live online training, extensive career support, industry certification, and much more. Sign up today for a shining career ahead!

Financial Modelling: Navigating Effective Techniques

Posted on September 1, 2023April 5, 2024 by Imarticus Learning

Financial analytics is an inseparable part of businesses and helps company owners make sound and effective economic decisions.

Furthermore, it also helps owners evaluate their company’s performance and make strategies accordingly. One such aspect of financial analytics is financial modelling.

In this blog, we will explore all about what financial modelling is, what it can be used for, its types, and its benefits. Continue reading to know more!

What is Financial Modelling?

Financial modelling is the act of creating a thorough summary of an enterprise’s earnings and expenses in the form of a spreadsheet.

Since financial modelling helps companies understand the impact of a future decision or event, it is one of the most helpful and sought-after aspects of financial analysis.

Financial models are typically prepared based on a company’s historica data and assumptions about future performance. Some of the requirements that should be met in order to successfully create a financial model are cash flow statements, balance sheets, and supporting schedules.

What Can Financial Modelling Be Used For?

Essentially, financial modelling is used to make more informed decisions in a company. It can be used to make decisions about the following:

Business valuation
Forecasting and budgeting
Raising capital
Organic business growth
Acquisitions
Financial statement analysis
Selling business assets
Accounting management
Capital allocation

Types of Financial Modelling

Companies use various kinds of financial models based on their needs and requirements. Below, we will discuss 5 such commonly used financial modelling techniques:

Three-Statement Model: The three-statement model is the commonest form of financial modelling. In this model, three statements, cash flow, balance sheet, and income statement, are plugged into a spreadsheet and linked with the appropriate formulae to get a dynamic model that can predict future statements.
Merger Model: This modelling technique is used to analyse two companies that are planning on merging together. This advanced model helps companies understand the dilution or accretion of a merger.
Discounted Cash Flow Model: Simply put, the discounted cash flow model helps estimate the value of an investment by generating projections about how much money that investment will bring in the future. This modelling technique enables business managers and owners to make effective expenditure-related decisions.
Budget Model: Budget models primarily focus on income statements and help business owners set a budget for a specified period based on their current monthly or quarterly figures.
Forecasting Model: This modelling technique is usually a part of budget models. It is used to create a financial forecast that can be compared to the budget model. Both these models combined can help businesses avoid extra expenditures and stay within their pre-determined budget goals.

Benefits of Financial Modelling

The major benefits of financial modelling are discussed here:

Performance Review: Financial modelling helps business owners compare the actual results of the business with the set budget in real-time. Hence, owners get to analyse and rectify any setbacks and, thus, improve their overall performance and increase profits.
Risk Management: Since financial modelling lets business owners know the future impact of any economic decision, it helps significantly minimise the common risks associated with any financial agreement. Furthermore, companies become more aware of potential risks and how to manage them.
Business Valuation: Financial models provide extremely accurate business valuations based on data such as cash flow, net income, and so on. This valuation not only helps business owners understand their worth in the market but also aids in possible restructuring or mergers.
Accurate Budgets and Forecasts: Financial models are based on tangible data and formulae; hence, they provide rather accurate budgets and forecasts. Company owners can use both of these to stay within their financial goals, even while performing well in the market.
Business Growth: Financial modelling helps paint an accurate picture of the economic outcome of any possible project or investment. Hence, owners and managers get a clear understanding of where they should invest money and where they should not. Thus, with more informed decision-making, financial modelling helps businesses reach new heights.

Conclusion

Financial modelling is a critical aspect of financial analytics that help enterprises understand their current economic situation and also forecast future financial outcomes. Hence, both big and small businesses are eagerly on the lookout for highly qualified and talented financial analysts to join their teams and help their companies grow unparalleled.

In this regard, the Financial Analysis Prodegree offered by Imarticus is the perfect course for individuals who want to seize this demand in the market. The financial analysis course is taught in collaboration with KPMG and includes exciting features like live online training, extensive career support, certification, and so on. The course duration is only 4 months, and by the end of it, you will certainly be a high-performing financial analyst. So, sign up today!

Significance of Financial Analytics in Decision Making

Posted on August 29, 2023May 14, 2024 by Imarticus Learning

Analytics in business refers to the practice of solving business problems using tools and techniques like statistical models, AI, historical data, and much more. In today’s time, any enterprise that wants to earn profits and run stably must make use of various business analytics in order to assess its current business position and improve its decision-making.

One such key component of business analytics is financial analytics. In this article, we will take a look into what is financial analytics, its types, and how it helps businesses make informed decisions. Continue reading to know more!

What is Financial Analytics?

Financial analytics refers to setting up custom analysis to deal with specific business questions and predicting possible future economic scenarios of an enterprise.

With financial analytics, companies can rely on actual data rather than perception to build business strategies. Hence, financial analysis forms a vital part of any business.

Types of Financial Analytics

The major financial analytics techniques used by businesses are described below:

Client Profitability Analytics: As the name suggests, this type of analytics is used to distinguish between clients who bring profit and those who do not. This analytics makes use of the 80/20 rule to demarcate between clients. In this scenario, 20% of the clients make up 80% of the profit, and 20% of the clients make up 80% of the customer expenses.
Predictive Analytics: This form of analytics is an integral part of the overall financial analysis of a company. With predictive analytics, individuals can make relatively accurate sales, profit and loss projections. The techniques used in predictive analytics include correlation analysis, statistical models, etc.
Cash Flow Analytics: Cash flow analytics is an essential component of businesses trying to track the money moving in and out of their corporation. This analytics method uses real-time indicators like cash conversion cycle and working capital ratio to paint an accurate picture of money movement.
Product Profitability Analytics: Just like client profitability analytics, product profitability analytics is used to identify the products that bring in significant profits and also help modify or get rid of products that are not performing well in the market.
Shareholder Value Analytics: This analytics tool helps companies assess their value by measuring the returns they can provide to their shareholders. With the data derived from shareholder value analytics, companies can evaluate their options to improve their shareholder values and, thus, their own profitability.

Importance of Financial Analytics in Decision Making

Just like any other form of analytics, financial analytics plays a critical role in improving the decision-making process of any company. Continue reading to understand how:

Tracks Financial Performance: Financial analytics helps companies constantly track their financial performance in terms of sales, cash flow, cash-on-hand, and much more. Consequently, all these data can be used to establish and modify financial strategies to get the most out of them.
Helps With Integrated Analytics: There are several financial aspects that should be analysed together in order to implement the most appropriate business strategies. With financial analytics, companies can easily merge different financial data and make the most informed business decision with all important factors in mind.
Increases Visibility: Financial analytics helps business owners constantly monitor and compare all sorts of financial data and records. Therefore, entrepreneurs can monitor the problems their employees face and, subsequently, make the appropriate changes to improve their company’s finances.
Provides Multi-Channel Approach: Financial analytics is helpful in understanding the profitability of products across different sales channels and customers. Hence, business owners will find it easier to change their business strategies according to how each channel is performing and, thus, improve their net gain.
Determines Risks: A key benefit of financial analytics is that it helps companies identify potential economic risks and aids in diverting investments in the right direction. This type of advanced risk management supports more informed decision-making and avoids sudden financial losses.
Improves Workflow: With financial data recorded in the supply chain, the various business departments that form a part of the supply chain management can easily access the data and therefore, make more guided decisions to improve the overall workflow to optimise costs.

Conclusion

In conclusion, financial analytics is a key part of any business that must be cracked in order to drive up sales and improve decision-making. This is why businesses these days, both big and small, are looking for talented individuals who are adept in this field.

In this regard, Imarticus’s Financial Analysis Prodegree program, in association with KPMG, is a must for those who want to make a name in this field.

This financial analyst course includes all the essential modules to help build your financial analytics foundation. Additionally, you will also get live online training, industry certification, career support, the chance to interact with actual industry practitioners, and much more. So, sign up today!

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