FUND FLOW STATEMENT

MEANING

FUND FLOW IS A STATEMENT WHICH SHOWS INFLOW & OUTFLOWS OF LONG TE

FUNDS FROM WHERE FUNDS HAVE BEEN GENERATED AND WHERE THEY ARE US

1 STEP:

SUPPOSE YOU WANT TO OPEN A BUSINESS WITH A CAPITAL OF 100 CRORES.

CAPITAL WE BRINGS INTO BUSINESS WE WILL BUY 80 CRORES OF FIXED ASSTEST AND
CRORES WILL RATINED IN CURRENT ASSETS
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
CAPITAL

TOTAL

2ND STEP:

AMOUNT CURRENT ASSETS

100 FIXED ASSETS
CURRENT ASSETS
100

AMOUNT
80
20
100

IN FUND FLOW STATEMENT WE WILL SHOW LONG TERM SOURCES OF FUNDS AND LONG T
USE OF FUNDS.
CAN YOU PREPARE FUND FLOW STATEMENT WITH ABOVE INFORMATION????????
FUND FLOW STATEMENT
SOURCES OF FUNDS
CAPITAL
TOTAL SOURCES OF FUNDS (A)
USE OF FUNDS
FIXED ASSETS
TOTAL USES OF FUNDS (B)
SURPLUS (A-B)

IT MEANS YOU BOUGHT 100 CRORE CAPITAL OUT OF WHICH 80 CRORES ( 80%) YOU USED
PURCHASING FIXED ASSETS AND RS.20 CRORES (20%) USED FOR CREATING CURRENT AS
( AS PER BALANCE SHEET IN STEP 1) IT MEANS YOUR CURRENT ASSETS IS FUNDED BY Y
OWN MONEY.

3RD STEP:

NOW YOU HAVE RS. 20 CRORE IN YOUR CURRENT ASSETS SUPPOSE MAY BE 15 CRORE
MATERIAL AND 5 CRORE IN CASH & BANK BALANCE
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
80
CURRENT ASSETS
RAW MATERIAL
15
CASH & BANK
5
TOTAL

100

100

4TH STEP:

NOW TELL ME WHAT YOU WILL DO WITH YOUR CURRENT ASSETS???

SUPPOSE YOU USED 13 OF RMS AND 4 CRORES OF CASH IN PRODUCTION .. SO YOUR RM

BALANCE WILL BE 2 CRORE AND CASH BALANCE WILL BECOME RS.1 CRORE
YOUR TOTLA COST OF PRODUCTION IS RS. 17 CRORE ( 13 CRORE (RMS)+ 4 CRORES ( CA
BANK)

SUPPOSE YOU SELL YOUR PRODUCTION FOR RS. 20 CRORES SO YOUR PROFIT IS RS. 3 CR
( 20 CRORES (SALES)- 17 CRORES (PRODUCTION)
CAN YOU PREPARE YOUR PROFIT AND LOSS STAMENT NOW ???
INCOME STATEMENT
INCOME
20
EXPENSES
TOTAL
4TH STEP:

17
3

NOW ASSUME THAT YOUR 60% SALE WAS ON CREDIT AND 40% ON CASH
CREDIT SALE FOR RS. 12 CRORE (60% OF 20 CRORE) AND CASH SALE FOR RS.8 CRORE (
20 CRORE)

IT MEANS YOU HAVE DEBOTRS FOR RS. 12 CRORES NOW AS SALE WAS MADE 60% ON CR

NOW WE HAVE DEBTORS OF RS. 12 CRORE, PROFIT OF RS. 3 CRORE, RMS OF RS. 2 CROR
CASH BALANCE OF RS.9 CRORES ( 1 CRORE ( 5-4(USED FOR PRODUCTION) + 8 CRORE
SALES))
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
80
CURRENT ASSETS
P& L
( RETAINED
PROFIT)

TOTAL

3 RAW MATERIAL
DEBTORS
CASH & BANK

2
12
9

103

TOTAL SOURCES OF FUNDS NOW

CAPTIAL
RETAINED PROFIT

103

100
3
103

NOTE:

IF CAPITAL IS LONG TERM FUND THEN RETAINED PROFIT IS ALSO LONG TERM FUND AS IT
TO OWNERS ONLY.

5TH STEP:

NOW CAN YOU PREPARE FUND FLOW STAMENT AS PER ABOVE GIVEN INFORMAT

FUND FLOW STATEMENT

SOURCES OF FUNDS
CAPITAL
FUND FROM OPERATIONS
TOTAL SOURCES OF FUNDS (A)
USE OF FUNDS
FIXED ASSETS
TOTAL USES OF FUNDS (B)
SURPLUS (A-B)

6TH STEP:

NOW SUPPOSE YOU WANT TO BUY ANOTHER PLANT & MACHIENERY FOR RS. 50
FOR THIS YOU HAVE TO INCREASE YOUR SALES BY 50 CRORES AND PROFIT BY
ANOTHER RS. 5 CRORES. IT SOUND VERY ILLOGICAL.BUT REMEMBER ONE THIN
FUND FLOW WILL THROW ALL ILLOGICAL FINANCIAL STUFF DONE BY THE BUSIN
ENTITIES

LETS GO AHEAD..NOW YOU ARE GOING TO BRING FRESH CAPITAL OF RS. 10 CRO
THIS
NOW QUESTION IS THAT ONLY 10 CRORES BUT YOUR REQUIREMENT IS RS.50 CR

BUT DONT FORGET YOU HAD CASH BALANCE OF RS. 9 CRORE. SO YOU HAVE F
RS. 19 CRORE( RS.10 CRORE( FRESH CAPITAL)+ RS.9 CRORE 9 CASH BALANCE)
HENCE THE REQUIREMENT IS FOR RS. 31 CRORE ( RS. 50 CRORE - RS. 19 CRORE

NOTE:

YOU CAN NOT USE SHORT TERM BORROWING FOR AQUIRING PLANT AND MACH
BUT SHORT TERM BORROWING GOING TO GIVE YOU CASH AND YOU MAY USE TH
FIND SOME LONG TERM FUNDS LATER AS SUBSTITUTE ( I KNOW ITS CRIMI
MISTAKE DONT WORRY GO AHEAD)
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
130
ADDITIONAL
CAPITAL

10 CURRENT ASSETS

SHORT TERM
BORROWING

31

P& L
( RETAINED
PROFIT)

TOTAL

3 RAW MATERIAL
DEBTORS
CASH & BANK
144

2
12
0
144

( SHORT TERM BORROWING + CASH+ ADDITION CAPITAL USED IN AQUIRING PLA

AND MACHINERY)

7TH STEP:

B
C

LAST YEAR YOUR SALES WERE RS. 20 CRORE FOR THAT YOU USED RMS FOR R
CRORE AND OTHER EXPENSES FOR RS. 4 CRORE FROM CASH
CURRENT YEAR YOU WILL REPEAT THE SAME PLUS ADDITIONAL SALES
WITH
EXISTING WITH NEW
PARTICULARS CAPACITY CAPACITY
SALES
20

50

70

RM
CONSUMED

13

38

-51

OTHER
EXPENSES

-11

PROFIT

SO IT MEANS YOU ARE GOING TO CONSUME RMS OF RS. 51 CRORE BUT YOUR BALANCE
SAYS YOU HAVE BALANCE OF RS. 2 CRORES WORTH RMS.NOW YOU HAVE TO PURCHASE R
CRORE ( RS. 51 CRORE - RS 2 CRORE) OF RAW MATERIALS.. AND YOU DONT HAVE CASH
...AND HAVE TO DEPEND ON YOUR CASH SALES FOR THIS. SO, ASCERTAIN CASH INFLOW
SALES

YOUR CREDIT SALES ARE GOING TO INCRESES TO REMAIN COMPETITIVE IN MARKET. YOU
SALES ARE RS.70 CRORE OUT OF WHICH 80% IS ON CREDIT SALES AND 20% ON CASH SA
YOU WILL HAVE DEBTORS OF 68 CRORES ( 56 CRORE(80% OF 70 CRORE) + 12 CRORE (A
LAST BALANCE SHEET)
NOW FIND OUT YOUR CASH BALANCE
OPENDING
0
CASH
SALES BALANCE
(20% OF 70
ADD:
CRORE)
14
CASH GENERATION
14

MAKE USE OF CASH GENERATED TO PURCHASE GOODS AND CALCULATE HOW MUCH SHO
PURCHASE ON CREDIT ????????
RAW MATERIAL REQUIREMENT
51
LESS: RAW STOCK AVAILABLE
2
RAW MATERIAL TO BE PURCHASE
49
LESS: CASH PURCHASE WITH CASH
GENERATED
RAW PURCHASE TO BE MADE IN
PURCHASE CREDIT

TOTAL

NOW YOU HAVE FOLLOWING BALANCE

CASH BALANCE
OTHER EXPENSE

14
35

0
-11

(HOW YOU WILL IF YOU DONT HAVE MONEY IN CASH & BANK). THOSE
EXPENSES WILL REMAIN LAIBLITY TILL THEY PAID OFF.
RAW MATERIAL STOCK

DEBTORS
CAN YOU PREPARE YOUR BALANCE SHEET?????????
LIABITIES
AMOUNT CURRENT ASSETS AMOUNT
CAPITAL
100 FIXED ASSETS
ADDITIONAL
CAPITAL

10 CURRENT ASSETS

BANK
OVERDRAFT

31

P& L
( RETAINED
PROFIT)

11 RAW MATERIAL

SUNDRY
CREDITORS

35 DEBTORS

EXPENSES
PAYABLE

11 CASH & BANK

TOTAL

198

68

130

0
68
0
198

CAN YOU PREPARE 2 YEARS BALANCE SHEET AND P&L AT ONE PLACE?????????
LIABITIES
CAPITAL

AMOUNT
AMOUNT (C.Y) (P.Y)
CURRENT ASSETS
100
100 FIXED ASSETS

AMOUNT (C.Y)
130

ADDITIONA
L CAPITAL

10

0 CURRENT ASSETS

BANK
OVERDRAFT

31

P& L
( RETAINED
PROFIT)

11

3 RAW MATERIAL

SUNDRY
CREDITORS

35

0 DEBTORS

EXPENSES
PAYABLE

11

0 CASH & BANK

TOTAL

198

103

INCOME STATEMENT
SALES
70

68
0
198

8TH STEP:
A
ANS.
B
ANS.

NOTE

RM
CONSUMPTIO
N

-51

OTHER
EXPESES
PROFIT

-11
8

IN THIS ENTIRE EXERCISE WE DO NOT TOUCH DEPRECIATION. LET DO NOT TOUCH T

LET TRY TO PREPARE YOUR FUND FLOW STATEMENT NOW
WHAT ARE THE LONG TERM SOURCE FOR COMPANY NOW??

ADDITIONAL CAPITAL OF RS. 10 AND FUND FROM OPERATION RS.8.. SO LONG TERM FUND
18
WHAT YOUR LONG TERM USES??
IT IS RS. 50 CRORES OF PLANT AND MACHINERY
HERE COMES THE CATCH GO AND PREPARE YOUR FUND FLOW STATEMENT
FUND FLOW STATEMENT
SOURCES OF FUNDS
CAPITAL
FUND FROM OPERATION
TOTAL SOURCES OF FUNDS (A)
USE OF FUNDS
FIXED ASSETS
TOTAL USES OF FUNDS (B)
SURPLUS (A-B)
YOUR LONG TERMS SOURCE SAYS THAT YOU HAD DEFICIT OF RS. 32 CRORES

IT MEANS YOU HAD USE SOME OTHER FUND FOR CREATING LONG TERM ASSETS. YOU HA
THE FUND FOR WORKING CAPITAL PURPOSE
LET ELABORATE THIS:

LAST YEAR YOUR WORKING CAPITAL REQUIREMENT WAS RS. 23 CRORES. THAT WAS FUND
FULLY BY OWN FUND.

BUT CURRENT YEAR WORKING CAPITAL FUND REQUIREMENT WAS RS. 68 CRORES.(I.E CU
ASSETS)+ BUT AGAINST THIS YOU HAD CURRENT LIABLITY OF RS. 77 CRORE ( BANK OVER
OTHER EXPENSES+ CREDITORS). IT MEANS YOU HAD NEGATIVE WORKING CAPITAL
LET ME TABULATE THAT
PARTICUALRS
CURRENT ASSETS
CURRENT LIABLITY
WORKING CAPITAL
REDUCTION IN WORKING CAPITAL

PREVOIUS
YEAR
23
0
23
32

YOU HAVE USED REDUCTION IN WORKING CAPITAL TO FUND FIXED ASSET CREAT
AND THIS AMOUNT REVEALED FROM FUND FLOW STATEMENT
OTHERWORDS,

YOU HAVE ATTEMPTED TO CREATE LONG TERM ASSET TO TUNE OF RS.50 CRS. B
ARRANGING LONG TERM FUND OF JUST RS. 18 CRS AND RELYING PREDOMINATY
SHORT TERM FUNDS OF RS. 32 CRORES

FFS SHOW THAT YOU WANT TO RUN BUSINESS WITH OTHER FUNDS, SPECIALLY
WHICH
CANTHAT
PUT LOTS
OF PRESSURES
ON LIQUIDITY
OF YOUR
BUSINESS
FFS SHOW
SOLVENCY
OF YOUR BUSINESS
IS ALWAYS
UNDER
PRESSURE AN
THREAT
FFS SHOW THAT YOU WANT TO CREATE ASSETS EVEN BEFORE YOU STABLISE IN
OPERATIONS
FFS SHOW THAT YOU ARE VERY POOR IN WORKING CAPITAL MANAGEMEN

FFS SHOW THAT YOU HAVE CHEATED YOUR BANKERS, BECAUSE YOU HAVE AVAIL
CASH CREDIT BUT IN TURN USED IT FOR CREATING FIXED ASSETS

REMARKS:

FFS IS A VERY DANGEROUS MASTER .. IF YOUR ACTIVITIES ARE MONSTRUS,

ILLOGICAL,DETRIMENTAL, YOU HAVE TO BE CAUSIOUS ABOUT THIS GUY-MR. FUN
FLOW STATEMENT.. HE IS THERE TO REVEAL YOU WHAT YOU DO???

NT

LOW & OUTFLOWS OF LONG TERMS

ATED AND WHERE THEY ARE USED.

ITAL OF 100 CRORES.

0 CRORES OF FIXED ASSTEST AND 20

??
Rs. Crore)

M SOURCES OF FUNDS AND LONG TERM

H ABOVE INFORMATION?????????

100
100
80
80
20

HICH 80 CRORES ( 80%) YOU USED IN

USED FOR CREATING CURRENT ASSETS
CURRENT ASSETS IS FUNDED BY YOUR

ETS SUPPOSE MAY BE 15 CRORE OF RAW

??
Rs. Crore)

URRENT ASSETS???

SH IN PRODUCTION .. SO YOUR RMS

BECOME RS.1 CRORE
13 CRORE (RMS)+ 4 CRORES ( CASH &

ORES SO YOUR PROFIT IS RS. 3 CRORES

MENT NOW ???

AND 40% ON CASH

AND CASH SALE FOR RS.8 CRORE (40% OF

W AS SALE WAS MADE 60% ON CREDIT

RS. 3 CRORE, RMS OF RS. 2 CRORES AND

D FOR PRODUCTION) + 8 CRORE (CASH

??
Rs. Crore)

T IS ALSO LONG TERM FUND AS IT PAYABLE

S PER ABOVE GIVEN INFORMATION???

100
3
103
80
80
23

NT & MACHIENERY FOR RS. 50 CRORE.

Y 50 CRORES AND PROFIT BY
CAL.BUT REMEMBER ONE THING
IAL STUFF DONE BY THE BUSINESS
FRESH CAPITAL OF RS. 10 CRORE FOR

OUR REQUIREMENT IS RS.50 CRORE??

RS. 9 CRORE. SO YOU HAVE FUND OF

RS.9 CRORE 9 CASH BALANCE)
( RS. 50 CRORE - RS. 19 CRORE)

OR AQUIRING PLANT AND MACHIENRY.

OU CASH AND YOU MAY USE THAT AND
BSTITUTE ( I KNOW ITS CRIMINAL
RY GO AHEAD)
??
Rs. Crore)

CAPITAL USED IN AQUIRING PLANT

OR THAT YOU USED RMS FOR RS. 13

FROM CASH
S ADDITIONAL SALES

S. 51 CRORE BUT YOUR BALANCE SHEET

MS.NOW YOU HAVE TO PURCHASE RS. 49
ALS.. AND YOU DONT HAVE CASH BALANCE
HIS. SO, ASCERTAIN CASH INFLOWS FROM

AIN COMPETITIVE IN MARKET. YOUR TOTAL

REDIT SALES AND 20% ON CASH SALES. SO
80% OF 70 CRORE) + 12 CRORE (AS PER

S AND CALCULATE HOW MUCH SHOULD BE

PAYABLE

N CASH & BANK). THOSE

L THEY PAID OFF.
CONSUME ALL RM

( 56 CRORE OF 80% OF 70 CRORE

CREDIT SALES)+OPENING
DEBOTRS AS PER BALANCE
SHEET

??
Rs. Crore)

D P&L AT ONE PLACE?????????

AMOUNT (P.Y)
80

12
9
103

PRECIATION. LET DO NOT TOUCH THAT

FLOW STATEMENT NOW
CE FOR COMPANY NOW??

RATION RS.8.. SO LONG TERM FUND IS RS.

RM USES??
YOUR FUND FLOW STATEMENT??

10
8
18
50
50
-32

DEFICIT OF RS. 32 CRORES

TING LONG TERM ASSETS. YOU HAD USED

S RS. 23 CRORES. THAT WAS FUNDED

MENT WAS RS. 68 CRORES.(I.E CURENT

LITY OF RS. 77 CRORE ( BANK OVERDARFT+
NEGATIVE WORKING CAPITAL

CURRENT YEAR
68
77
-9
( PREVIOUS YEAR CURRENT YEAR)

AL TO FUND FIXED ASSET CREATION

STATEMENT

SSET TO TUNE OF RS.50 CRS. BY

RS AND RELYING PREDOMINATY OF

ITH OTHER FUNDS, SPECIALLY FUNDS

ITY
OF YOUR
BUSINESS
S ALWAYS
UNDER
PRESSURE AND
EVEN BEFORE YOU STABLISE IN YOUR
S
WORKING CAPITAL MANAGEMENT

ERS, BECAUSE YOU HAVE AVAILED

NG FIXED ASSETS

CTIVITIES ARE MONSTRUS,

IOUS ABOUT THIS GUY-MR. FUND
WHAT YOU DO???