Cash flow analysis focuses on the movement of cash in and out of a business, tracking the actual cash transactions that occur. It helps to understand the liquidity position of the business and its ability to meet short-term obligations. On the other hand, funds flow analysis looks at the sources and uses of funds in a business, including both cash and non-cash transactions. It helps to understand the overall financial health and performance of the business.
Components of funds flow statement:
1. Sources of funds - Cash inflows from operations, borrowings, equity issuance, etc.
2. Uses of funds - Cash outflows for operating expenses, debt repayment, capital expenditures, etc.
3. Changes in working capital - Reflects the change in current assets and liabilities over a period.
4. Non-operating activities - Includes cash flows from investing and financing activities.
5. Net increase or decrease in funds - Shows the overall change in funds during the period.
Overall, funds flow analysis provides a more comprehensive view of the financial situation of a business compared to cash flow analysis, which only focuses on cash transactions.
Distinguish between cash flow and funds flow analysis? Mention the components of funds flow statement
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