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Unit 12: Fund Flow Analysis




          15.   Which of the following is not an objectives fund-fl ow analysis?                 Notes

               (a)   It pinpoints the mobilization of resources and the further utilization of resources

               (b)   It highlights the financing of the general expansion of the business fi rms
               (c)  It exemplifies the utilization of debt finance in the structure of fi nancing


               (d)   None of these.
          16.   Which of the following is not a source of fund?
               (a)   Purchase of Long-term Investments

               (b)   Acceptance of deposits
               (c)   Sale of Non-current Assets
               (d)   Decrease in Working Capital

          12.5 Summary





               Fund flow statements summarize a fi rm’s inflow and outflow of funds.
               Simply put, it tells investors where funds have come from and where funds have gone.

               The statements are often used to determine whether companies efficiently source and
               utilize funds available to them.

               Fund flow statements are prepared by taking the balance sheets for two dates representing
               the coverage period.
               The increases and decreases must then be calculated for each item. Finally, the changes are
               classified under four categories: (1) Long-term sources, (2) Long-term uses, (3) Short-term

               sources, and (4) Short-term uses.
               It is also important to zero out the non-fund based adjustments in order to capture only the

               changes that are accompanies by flow of funds.
               However, income accrued but received and expenses incurred but not received reckoned


               in the profit and loss statement should not be excluded from the profi t figure for the fund
               fl ow statement.

               Fund flow statements can be used to identify a variety of problems in the way a company
               operates.

               Meanwhile, a company that is using long-term money to finance short-term investments

               may not be efficiently utilizing its capital.
          12.6 Keywords


          Current Assets: Assets which are in the form of cash, equivalent to cash or easily convertible into
          cash.
          Current Liabilities: Short-term financial resources of the fi rm.

          Decrease in Working Capital: Decrease in Net working capital i.e. Excess of current liabilities
          over the current assets – Resources side of the fund fl ow.
          Flow: Flow means changes occurred in between two different time periods.
          Fund: Fund means working capital.






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