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Unit 7: Fund Flow Statement

6. Indicator of past track of the firm: The insight on the financial performance of the firm Notes
can be had by the lending institutions through fund flow statement at the time of extending
financial assistance to the firm.

7.7 Limitations of Fund Flow Statement

Fund flow statement analysis has following limitations:
1. It is an extension of financial statements but it cannot be leveled with the emphasis of
them.
2. It is not a resultant of the transaction instead it is an arrangement of among the available
information.

3. Projected fund flow statement ever only to the tune of financial statements which are
historic in feature.

Task Discuss any non-current account transactions affecting the fund position of
a firm of your choice.
7.8 Summary

Fund flow statements summarize a firm'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 profit figure for the fund
flow 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.

7.9 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 firm.

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