Difference Between Cash Flow and Fund Flow

Cash and Funds are critically required for the smooth functioning of any business and are often perceived as similar to each other. The primary difference between cash flow and fund flow is that cash is referred to as the physical currency available to any business.

 

On the other hand, a fund is a broader term that consists of the total financial resources available and is referred to as the working capital of a business. Businesses account for the changes in the cash and working capital and analyze them by preparing cash flow statements and fund flow statements respectively.

 

The difference between cash flow and fund flow statements emerges from the conceptual difference between cash and funds and both statements are analyzed in different lights to measure financial metrics and formulate future strategies. Analyzing a business’s cash flow and fund flow statement is one of the primary metrics of selecting good stocks for long-term.

 

Before figuring out the differences between cash flow statements and fund flow, let’s understand in detail the meaning and uses of cash flow statements and fund flow statements.

 

 

What is Cash Flow Statement?

A cash flow statement is an important financial document that tells us the movement of cash I.e., inflow and outflow of cash in a company. It is one of the most important elements and the cash flow applicability statement is to fundamentally analyze a company.

 

One of the primary objectives of a cash flow statement are that it reports the changes in the company’s cash position at a particular period of time and if a company is generating profits, is it able to reflect it in cash or not.

 

In other words, cash flow statement is based on the cash basis of accounting and records transactions when actual cash comes in and gone out of the business during a specific time which can be either one year, or half year or even a quarter.

 

It is different from profit and loss accounts and one of the primary uses of a cash flow statements is that it shows the financial performance of a company over a specified period as it considers those accruals and deemed payments such as debtors which have not yet been converted into cash.

 

 

The cash flow statement is divided into three heads:

 

• Financing activities

Financing activities tell you the capital structure of the company and include all the cash generated or incurred through financial transactions such as dividends payments, dividends received, loan repayment, share issuing, bond issuing, or taking loans.

 

• Investing activities

Any inflow or outflow of cash from activities that involve the buying and selling of fixed assets will be accounted for comes under cash flow from investing activities.

 

• Operating activities

a). It conveys the income generation or expenses incurred from the main operating activities of the company. Operating activities are those activities which are used in the day-to-day activities of the business such as manufacturing, sales, marketing and hiring.

b). In such cases, cash inflow for the company would be in the form of sales from goods and services, cash realized from debtors or cash received in any other form.

c). On the other hand, cash outflow under operating activities includes cash paid as salary, cash paid to creditors or cash paid for expenses.

d). The non- cash transaction that was subtracted from the income and loss statement would be added back.

Cash flow statement is among the critical fundamental metrics which are used to fundamentally analyze a company. It assists us in assessing the liquidity position of a company and tells us how good a company is at converting its revenues and profits into cash.

 

 

What is Fund Flow Statement?

As we know, funds include cash and cash equivalents and other assets which are of value and facilitate the day-to-day working of the company. It is referred to as the working capital of the company. A fund flow statement means a statement that records the changes in the working capital of the company during a specific period.

 

The objectives of fund flow analysis are to track, measure and analyze the change in the working capital of an organization and assist the company in tracking any discrepancies in funds. With the preparation of the fund flow statement, it becomes easier to gauge investor sentiment as it tracks changes in different asset classes.

 

The uses of fund flow statement analysis for investors is to analyze a fund flow statement of a company and to be well aware of the performance of the various asset classes of the company they are investing in as a fund flow statement reveals the financial status of a company by comparing two different accounting periods.

 

Now that you have an idea of what cash flow and fund flow statement is, you can now analyze the top 10 companies by market capitalization in India in terms of their cash flow and fund flow before investing.

 

 

Difference between Cash flow Statement and Fund Flow Statement

 

	Cash Flow Statement	Fund Flow Statement
Meaning	Cash flow represents the incoming and outgoing of cash and cash equivalents from a business during a specific period.	Fund flow statement records the changes in the working capital of two different time periods.
Accounting treatment	Cash flow statement is based on the cash basis of accounting and transactions are recorded only when it involves cash and cash equivalents.	Fund flow statement follows the accrual basis of accounting where transactions are recorded as and when they take place.
Application	Cash flow statement played a crucial role in the formulation of future plans by accounting the inflow and outflow of cash in the business.	Fund flow statement signifies the changes in the working capital of a company and helps investors to gauge the financial standing of a company.
Time Duration	A cash flow statement analyzes a business's liquidity position in the short-term.	A fund flow statement analyzes a company's financial standing in the long-term.
Usage	Preparation of cash flow statement and its analysis is mainly used in cash budgeting.	Preparation and analysis of fund flow statement is used by businesses for capital budgeting.
Statutory requirement	It is mandatory for the companies to include a cash flow statement in annual financial statements.	It is not statutorily mandatory for companies to include a fund flow statement in annual financial statements, but companies can do so to increase investors' confidence.

 

Both financial statements have crucial bearings on the performance of a company in the short term as well as in the long term. Companies analyze these statements to manage cash in the short term and discover deviances in the long term and the investor can get an idea of the organization's cash strength, profitability, and long-term outlook. By using the CFS, investors can determine whether or not a company has adequate liquidity to pay its expenses and one can plan and implement strategies based on the inferences drawn from these statements after analyzing them.

 

Apart from this fundamental analysis of companies, you can also analyze companies on other coffee can metrics and make a Coffee Can portfolio suitable for long-term investment.