2. 1 FUNDS FLOW ANALYSIS Flow of funds in and out of the business entity is a regular feature. The flow takes place through cash, credit or exchange transactions Thus, raising and deployment of fund is an almost continuous process, which requires close monitoring to achieve the organisaatinal goal of profit maximisation. Any increase in assets means use of funds and any decrease in assets as source of funds. Likewise, any increase in liabilities results into sources and decrease in liability as uses of funds.

3. 2 Increase in liability or decrease in asset is a source of funds. Decrease in liability or increase in asset is use of funds

4. 3 However, there are few transactions, which may result in the changes in assets or liabilities but there may not be any flow of funds.For instance: i) Issue of bonus shares ii)Revaluation of Assets iii)Loss of goods due to fire While comparing the figures of balance sheet we can obtain sources and uses of funds during a given period. For instance the value of net fixed asset shown in a balance sheet for the year 1998 and 1999 were Rs.45 lakhs and Rs. 55 lakhs and the purchases of fixed assets during the year 1999 were of RS. 15 lakhs.Then, the changes of Rs. 10 lakhs as per balance sheet will show as use of funds whereas actual use has been of Rs. 15 lakhs.

5. 4 A decrease in NWC is considered source of funds An increase in NWC thus considered use of funds

6. 5 SCHEMATIC PRESENTATION OF FUNDS FLOW OpeningChanges inClosing Balance ofWorkingBalance NWCCapitalof NWC SOURCES OF WORKINGUSES OF WORKING CAPITALCAPITAL * Business operations* Acquisition of Fixed Assets * Sale of Fixed Assets* Long Term Investments * Sale of Long Term * Repayment of Long Term Investments Debts * Issue of Long Term Debt* Payment of Dividend * Issue of Equity

7. 6 Sources of funds 1.Decrease in non-current assets 2.Increase in non-current liabilities 3.Increase in owner’s equity 4.Business Operations Uses of funds 1.Increase in non-current assets 2.Decrease in non-capital liabilities 3.Decrease in Owner’s equity

8. 7 From the funds flow statement one can know the following: 1.Funds provided by business operations 2.Changes in NWC over the period 3.Amount of NWC deployed in the business 4.Which long term sources of funds can be further trapped to finance current assets ? 5.Is the ratio between sources of short-term funds and long - term funds reasonable ? 6.What corrective action should be initiated by the management, if problems are spotted in both in investment and financing ?

9. 8 FORMAT FOR FUNDS FLOW STATEMENT FUNDS FROM PETTAIONS Amount Net Profit after Tax ADD:Depreciation Any other amortisation expenses Loss on sale of assets LESS:Gain on sale of asset _____________ FUNDS FROM OPERATIONS

10. 9 FORMAT FOR FUNDS FLOW STATEMENT Contd… SOURCES OF FUNDSAmount 1.Funds from operations 2.Increase in Capital 3.Increase in Term Liability 4.Decrease in a.Fixed Asset b.Other non-current asset __________ TOTAL SOURCES(Total of 1 to 4)

11. 10 FORMAT FOR FUNDS FLOW STATEMENT Contd… USES OF FUNDS:Amount 1.Dividend payment 2.Decrease in Term Liability 2.Increase in a. Fixed Asset b. Other non-current asset 4.Net Working Capital ________ TOTAL USES ( Total of 1 to 4 )

12. 11 CASH FLOW STATEMENT The Cash flow statement enables one to know the closing balance of cash and changes in other assets. Which have led to the change in the cash balances. It also enables one to know 1.Changes which have taken place in cash over time. 2.The amount of cash provided by the operations of the business 3.How much cash is used and for which purpose 4.How much more cash is required to be obtained etc ?

13. 12 SCHEMATIC PRESTNTATION OF CASH FLOW OpeningChange inClosing Balance Balance of Cash Cash Of Cash SOURCES OF CASHUSES OF CASH * Net decrease in current assets other * Net increase in current assets other than cash than cash * A gross decrease in fixed assets* A gross increase in fixed assets * A net increase in current liability* A net decrease in current liability * A net increase in non-current liability* A net decrease in non-current liability * Proceeds from the sale of equity/* Redemption of preference shares preference shares or loans * Cash from operations* Cash loss in operations

14. 13 FORMAT FOR CASH FLOW STATEMENT CASH FROM OPERATIONS:Amount Net Income ADD:Depreciation Amortisation expenses Loss on sale of non-current assets (except cash) Increase in each current liability LESS:Gain on sale of non-current assts Increase in each current assets (except cash) Decrease in each current liability ____________ cash from operations ( + / -)

15. 14 FORMAT FOR CASH FLOW STATEMENT Contd… STATEMENT OF SOURCES AND USES OF CASH SOURCESAMOUNT Cash from operations Sale of long-term investments Sale of other fixed assets Share Capital _______ TOTAL SOURCES (A) USESAMOUNT Acquisition of fixed assets Payment of dividend Purchase of marketable securities Change in cash ( +/_) _______ TOTAL USES(B) Change in Cash (+ / -) (A- B)_______