Page 157 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes Fund Flow Statement
Sources Applications
Issue of Shares 1,00,000 Purchase of Land 70,000
Funds from operation 90,000 Increase in working capital 1,20,000
1,90,000 1,90,000

7.6 Advantages of Preparing Fund Flow Statement

The Fund Flow Statement has the following advantages:
1. Illustrative statement of financing: It is a statement which highlights the role of various
kinds of financing not only in the dimension of project development and expansion but
also growth rate of the organization.

Figure 7.2

2. Structured analysis on the working capital of a firm: It is the only statement to study the
changes in the working capital in between two different periods from the balance sheet of
a firm through structured analysis on the basis of working capital position.
3. Fulfills the primary objective of the financial management: It not only elucidates the
mode of financing but also the application of resources after rising. It answers to the
following queries, viz.
(a) How the outsider's liabilities are redeemed?
(b) What is the role of the fund from operation generated?
(c) How the raised funds applied into business?
(d) How the decrease in working capital was applied?

(e) What is the mode of raising the financial resources for an increase in the working
capital?
4. Facilitation through financial planning: The projected fund flow statement from the past
performance facilitates the firm to anticipate the future requirement of financial resources.
It guides the management to prioritize the application in the future to the tune of scarce
resources.
5. Guide to working capital management: It acts as a guide to the management to maintain
the working capital at optimum level through either purchase or sale of marketable
securities during the periods of adequate and inadequate working capital respectively.

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