Funds flow statement also known as ‘funds statement’ or ‘statement of sources and application of funds’ or ‘where got, where gone statement’ is a popular technical device used to focus on the changes in the financial condition of a business between two dates. FFS is an important tool of long term financial planning that aid managers in analysis of working capital position of the business and helps in decision making. FFS indicates the sources of funds and the way in which those funds were employed in the business and so it is known as ‘statement of sources and application of funds’.
The sources of funds include
a. Issue of shares/ debentures
b. Sale of fixed assets
c. Decrease in working capital
d. Funds from operations
Application of funds takes place in following cases-
a. Redemption of preference/ debt capital
b. Purchase of fixed assets or long term investments
c. Loss arising from operations
d. Dividend distribution
e. Tax paid
f. Increase in working capital
For a finance expert, the planning ability of management, financial prudence and overall financial management within the company can be understood from the FFS analysis. The FFS is a supplementary statement (not a substitute statement) to be prepared along with balance sheet and profit & loss account. Banks and financial institutions usually insist upon FFS for sanction of loans.
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