Financial statements play an essential role in evaluating a business’s financial health and performance. However, among these, cash flow statements and fund flow statements are vital tools for financial analysis. While both offer deep insights into an organization’s liquidity, they have distinct purposes, methodologies, and interpretations.
In this article, we will explore both statements in detail like, difference between cash flow and fund flow statement, what they are, etc.
What is a Cash Flow Statement?
This statement is one of the vital financial statements of the company to gauge the inflow and outflow movement of cash for a particular period. However, this report is needed or required under GAAP, which is generally accepted accounting principles.
Remember, it is different from an income statement, which helps in recording all the financial data or, you can say, transactions that are not fully realized. For example, unpaid income, uncollected revenue, etc. On the contrary, cash flow statements have all this information because they deliver a clear picture of cash generated by the business.
Moreover, they are divided into three main categories: –
- Cash flows from all investing activities
- Financing activities
- Operating activities
Advantages of Cash Flow Statement
- It is helpful in assessing the company’s liquidity as well as profitability.
- The cash flow statement is also useful in analyzing the Profit and Loss Statement and the balance sheet by denoting the overall cash movement that is coming and going out of the business.
What is a Fund Flow Statement?
It is the working capital of the company that consists of the inflow and outflow movement of funds. However, it is prepared periodically to keep track of all the company’s financial positions, which also helps in long-term planning.
However, accountants study the fund flow statement regularly so that any type of irregularities can be sought out. Moreover, the company’s investors use fund flow statements to know where the need for capital is.
Advantages of Fund Flow Statement
- It helps in understanding the capital-generating capacity of the business by which the organization can plan future actions for success.
- Useful for business management in making strategic decisions regarding resource usage. That means it helps in the allocation of the limited resources accordingly.
- It depicts the utilization of the available capital as it helps reveal the overall efficiency and draws insights into the business’s working capital management.
What are the Key Differences Between Cash Flow And Fund Flow Statement?
The cash flow statement vs fund flow statement are as follows: –
| Aspect | Cash Flow Statement | Fund Flow Statement |
| Purpose | Focuses on cash movements within a specific period. | Analyzes changes in financial position between two balance sheet dates. |
| Timeframe | Covers a specific period (e.g., quarterly or annually). | Compares financial position between two balance sheet dates. |
| Scope | Concentrates on cash transactions, including operating, investing, and financing activities. | Emphasizes changes in working capital and long-term funds. |
| Liquidity Focus | Highlights short-term liquidity and a company’s ability to meet immediate obligations. | Provides insights into long-term financial stability and capital structure. |
| Components | 1. Operating Activities: Cash flows from core business operations. <br> 2. Investing Activities: Cash flows from buying/selling assets. <br> 3. Financing Activities: Cash flows from borrowing, issuing stock, etc. | 1. Working Capital Changes: Variations in current assets and liabilities. <br> 2. Long-Term Fund Movements: Changes in equity, debentures, and retained earnings. |
| Analysis Focus | Short-term financial health and cash availability. | Long-term financial decisions, investments, and changes in capital structure. |
Which One is Better: Cash Flow vs Fund Flow Statements?
No doubt, both cash and fund flow offers varied purposes while offering deep insights of a business’s financial health. However, it is very important to identify that each of these statements offers useful information with advantages.
In simple words, cash flow helps in analyzing real capital inflows and outflows of the business by delivering an overview of a business’s short liquidity and availability of cash. Moreover, it helps companies assess their actual capability to meet financial obligations while making everyday operational strategic decisions.
On the contrary, fund flow delivers a wide perspective of capital and non-capital items. However, it also evaluates the overall movement of business financial resources, like changes in working capital.
Here, after understanding the fund flow statement and cash flow statement difference, it is valuable to decide which one is better for business rather than utilize both of them in business to gain deep insights into the financial landscape.
The Bottom Line
Both cash flow and fund flow statements are invaluable tools for financial analysis that serve a distinct purpose. However, the cash flow statement offers deep insights into short-term liquidity and cash movements. On the contrary, the fund flow statement delves deeper into long-term financial changes and working capital variations.
Moreover, distinguish between fund flow statement and cash flow statement and their advantages, investors, analysts, and business leaders can make informed decisions, safeguarding the financial stability and growth of their organizations in an ever-changing economic landscape.
Faqs on cash flow and fund flow statement
1. What is the other name of fund flow?
The other name of fund flow is a statement of changes in relation to the business’s financial position.
2. How is the cash flow of the business measured?
The cash flow of the company is measured by analyzing both cash inflows and outflows. On top of that, also consider investing, financing, and operating activities. Once you are done with this, calculate it by subtracting cash outflows from inflows.
3. What are the three cash inflows?
The cash flow is divided into three categories. They are operating, investing, and financing activities.