Difference Between Cash Flow and Fund Flow?

 


Cash flow and fund flow are two distinct financial concepts used to analyze a company's financial health. Here are the key differences between Cash flow and fund flow.

Cash Flow

Definition: Cash flow refers to the movement of actual cash into and out of a business over a specific period. It focuses on the liquidity of the company and its ability to generate cash to meet its short-term obligations.

Types:

  1. Operating Cash Flow: Cash generated from regular business operations.
  2. Investing Cash Flow: Cash used for or generated from investments in assets like property, equipment, or securities.

Financing Cash Flow: Cash obtained from or paid to financiers, such as issuing debt, repaying loans, or paying dividends.

Purpose: To assess the company’s liquidity, solvency, and overall financial performance over a short period, typically monthly, quarterly, or annually.

Focus: Actual cash transactions – it records cash receipts and payments.

Statement: Presented in the cash flow statement, which is one of the primary financial statements.

Example: A company receiving $10,000 from sales and paying $5,000 for expenses would have a net positive cash flow of $5,000.

Fund Flow

Definition: Fund flow refers to the movement of financial resources within a business over a specific period. It focuses on changes in the company’s financial position between two balance sheet dates, highlighting the sources and uses of funds.

Types:

  1. Sources of Funds: Activities that generate funds, such as profits, sale of fixed assets, issue of shares, or taking loans.
  2. Uses of Funds: Activities that consume funds, such as losses, purchase of fixed assets, repayment of loans, or payment of dividends.

Purpose: To analyze the changes in the financial structure of the company, indicating how the funds were sourced and utilized over a longer period.

Focus: Non-cash transactions – it records all financial resources and their applications, including changes in working capital.

Statement: Presented in the fund flow statement, which is not a primary financial statement but is used for internal management and financial analysis.

Example: A company selling equipment worth $10,000 (source of funds) and using $5,000 to pay off debt (use of funds) would show these changes in its fund flow statement.

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