Both Cash and Fund flow as concepts are fundamental to the discipline of accounting. These ratios are important in assessing the liquidity position of a company. Cash flow refers to a firm’s inflow and outflow of cash and cash equivalents during a specific period whereas Fund flow records the changes in the working capital over a time period.
The cash flow statement is one of the most important financial statements to gauge the movement (inflow & outflow) of cash in an organization in a specific period (Annually, Semi-annually, quarterly).
Cash Flow movement in an organization could be due to operating, investing, and financial activities. One of the main purposes of financial reporting is to evaluate the quantities, timing, and uncertainty of cash flows, their place of origin, and where they go. It helps an investor to assess the company’s current liquidity position & arrive at a decision on whether to invest in it or not.
It refers to the working capital of an organization and it consists of the net movement of funds (inflow and outflow). A fund flow statement is prepared periodically to keep a track of financial position of the company & helps in long-term financial planning. Any irregularities in fund movement can be identified by studying the fund flow statement. Investors use fund flow information to understand where capital needs to be invested.
Cash Flow Statement | Fund Flow Statement |
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It denotes the inflow & outflow of cash equivalents during a specific period | This is based on the concept of variations in the working capital over a time period |
This helps in cash budgeting | This helps in capital budgeting |
It helps gauge the net cash flow of the company | It helps gauge the financial position of the company |
The cash flow statement documents the changes in the opening and closing balance of cash | The fund flow statement captures the source and application of funds |
All kinds of disclosures regarding cash inflow and outflow are done under cash flow. | Fund flow helps in the disclosure and identification of every source of generation of funds. |
Cash flow is a part of the financial statement. | Fund flow is not a part of the financial statement. |
Cash flow statement is made for short-term financial planning and decision-making | A fund flow statement is used to make long-term planning and decision-making |
Both Cash and Fund flow facilitate investors with a periodic picture of the performance of a firm. Strategies devised on the basis of cash and fund flow analysis can prove to play a vital role in a firm’s performance and liquidity in the long-run.
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