TECHNIQUE OF

FINANCIL ANALYSIS

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 CASH FLOW STATEMENT

This statement is prepared to know clearly

the various items of inflow & outflow of
cash. It is an essential tool for short-term
financial analysis & is very helpful in the
evaluation of current liquidity of business
concern. It is helps the business executives
of a business in the efficient cash
management

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 FUND FLOW STATEMENT

This statement is prepared in order to reveal

clearly the various sources where from the fund
are procured to finance the activity of business
concern during the accounting period & also
brings the highlights the use of which these funds
are put during the said period.
A fund flow statement is statement which reflects
movements of fund. The statement is called
“Statement of sources & application of funds”,”
Statement of derivation & disposition of means
of operation”, “where got, where gone
statement”.
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 SOURCE OF FUNDS:-
Funds mat derived from:-
1 Issue of share capital
2 Borrowing
3 Sale of fixed assets & investment
4 Income from investments
5 Income from trading operations (i.e.
Profits)
6 Decrease of working capital
7 Non-trading operations like dividend,
gifts etc received.

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 APPLICATINS OF FUNDS:-
1Repayment of debenture, loans & rede4emable
shares
2 Purchase of investments & other fixed assets
3 Payments of dividends
4 Increase in working capital
5 Loss in account of trading operations
6 Non trading operations

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 IMPORTANCE OF FUND FLOW STATEMENT
The statement is useful to both external & internals parties
concerned. The statement is helpful to consider in the following
respects:-
1 To assess the fund available for payment of dividends & interest
on the investment
2 To assess the efficiency of management in application of funds.
3 To assess probable expected returns on future investment
4 To assess degree of risk involved in lending money to the concern
The statement is helpful to management in the following respects:-
1 Management knows the resources & application or funds & their
composition
2 The statement, though historical in nature, may be said to be a
counter part to business budgetary control system. Management mat
know, whether the working capital has been efficiently used or not.

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 CONSTRUCTION OF A FUND FLOW
STATEMENT
Construction of the fund flow statement involves
the following three important stages:-
1 Determination of working capital and
ascertainment of increase in working capital over
a period of time.
2 Determination of funds generated business
operation
3 Accounting for the change in non current
account i.e. fixed asset
fixed liabilities.

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 USES/ADVANTAGES OF CASH FLOW
STATEMENT
It is a helpful in the evaluation of cash position of a firm.
It helps the management in understanding the past behaviour
of cash cycle & in controlling the uses of cash in future
The repayment of loan, replacement of assets & other such
program can be planned on its basis.
it throws light on the factors contribution to the reduction of
cash balance in spite of increasing in income or vice-versa.
A comparison of cash flow statement with the budgeted
forecast of cash for the same period helps in comparison &
control on cash expenditure.
This statement is helpful in short term financial decisions
relating of liquidity & ways means positions of the firm.

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 DIFFERENCE BETWEEN FUND FLOW & CASH
FLOW
1. Cash flow deals with the cash transaction only, while
fund flow is concerned with all the items constituting
funds for the financing of assets acquisition program
2. In cash flow statement only cash receipts &
disbursement their net effect is recorded
3. Cash flow concerned with cash only while fund flow is
concerned with the total provision of funds .A fund flow
statement is a flexible device designed to disclose &
emphasize all significant change in current assets &
liability of the firm during the period under study.

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