Fund flow analysis

Email Print Fund flow analysis is one of the simplest and the basic tools for stock analysis.

Fund flow analysis

Generally speaking, the Fund Flow analysis requires the preparation of two statements: Statement of Changes in Working Capital 2.

Fund flow analysis

Statement of Changes in Working Capital: The working capital does change due to various transactions. The working capital position at the beginning of a period is changed Fund flow analysis a different position at the end of that period.

A Statement of working capital is prepared to depict the changes in working capital. Working capital represents the excess of Current Assets over Current Liabilities. Since, several items i. This Statement is prepared with current assets and current liabilities as appearing in the Balance Sheets under consideration.

The Statement shows the changes in individual items of current assets and current liabilities and their effect of working capital. The total increase and the total decrease in the end is compared and the difference of total increase and total decrease shows the net increase or net decrease in the working capital.

A form of the Statement is given below: How to Prepare the Above Schedule? The Schedule considers only the Accounts appearing in the Balance Sheets. There is no effect of additional information given at the end of problem.

The amount of every item of Current Asset of the current year is compared with its amount of previous year. If the amount of current asset of the current year is more than its amount of previous year, the excess is recorded in debit column. If the amount of current asset of the current year is less than its amount of the previous year, the deficiency is recorded in credit column.

Make sure that all the accounts relating to current assets appearing in the two Balance Sheets are gone through and differences are properly recorded.

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If the amount of each current liability of current year is more than its amount of previous year, the excess is recorded in the credit column. If the amount of current liability of current year is less than its amount of previous year, the deficit is recorded in debit column.

Find out totals of all debit amounts and all credit amounts. The above total are compared in the end and the difference shows decrease or increase in the Working Capital.

It is easy as there is no complications. This facilitate us to know in advance the answer to be disclosed by the Statement of Sources and Applications.

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The following rules may be noted: The increase or decrease in the Working Capital should be equal to that shown in the Statement of Sources and Applications of Funds.

You are given the following Balance Sheets of a Company: Alternative Methods to the Above: Here we make use of both current assets and current liabilities and non-current assets and non-current liabilities. The schedule is similar to the above but with only one difference of two more columns to record increase or decrease in non-current assets and non-current liabilities.

The specimen form is given below: The following are the summarised Balance Sheets of Ram Ltd. All assets other than current assets come within the category of non- current assets.

Preliminary Expenses, Discount on Issue of shares or Debentures etc.

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All liabilities other than current liabilities come within the category of non-current liabilities. This is second but most important part of Fund Flow Statement.

This Statement is prepared with the help of remaining items in the Balance Sheet of the two periods all non-current assets and non-current liabilities and other information given in the problem. That is, it is prepared on the basis of the changes in Fixed Assets, Long-term Liabilities and Share Capital ascertained on the basis of values of these items shown in the Balance Sheets.

Of course, additional information, if given, must also be considered. Thus the preparation of this Statement involves the ascertainment of increase or decrease in the various items of fixed assets, long-term liabilities and share capital.

BREAKING DOWN 'Fund Flow'

Those business transactions, which cause an increase in the working capital, are considered as Source of Fund and on the same footing business transactions causing a decrease in working capital are known as Uses of Funds. The probable items of sources and uses of fund are tabulated below: There is no legally prescribed or generally accepted form of Fund Flow Statement.Fund flow is usually measured on a monthly or quarterly basis; the performance of an asset or fund is not taken into account, only share redemptions, or outflows, and share purchases, or inflows.

Fund Flow Statement is a statement which indicates various sources from which funds (Working Capital) have been obtained during a certain period and the uses or applications to which these funds have been put during that period.

Fund Flow When it was required, the statement of fund flow was primarily used by accountants to report any change in a company's net working capital during a set period of time. Finding Funds: Fund flow data shows which funds are most popular among investors and which are falling out of favor.

Putting It Into Context Fund flows can be used to identify past investment trends, but looking towards the . Fund Flow Statement does not reveal the cash position of the company, and that is why company has to prepare cash flow statement in addition to funds flow statement.

3.

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Funds flow statement only rearranges the data which is there in the books of account and therefore it lacks originality. Fund flow analysis is one of the simplest and the basic tools for stock analysis. Fund flow analysis helps investors in identifying the key areas of utilization of funds for a company during any period along with the key sources of those funds.

Fund flow analysis provides a great help to investors.

Cash Flow Statement Vs Fund Flow Statement -Difference Advantage Disadvantage and Uses