fund flow and cash flow statement

8/11/2019 Fund Flow and Cash Flow Statement

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Fund Flow and Cash Flow Statement

The statement which shows various sources of funds and their uses is called fund

flow statement and its different from revenue statement of balance sheet. The FFS

can be based on two concepts, those are as follows.

i. Change in Working Capital concept

It is derived from the need for availability of liquidity and need for the liquid

funds. That is current assets and current liability.

ii. Change in Financial Position

A promoter/banker concerned with funds not only for the working capital but for

the entire funding needs. Their concern is to adding fixed asset/repayment of long

term loans as per their pre-fixed repayment schedule. Movement of all the funds in

the business has to be considered.

The fund flow statement should be carefully examined and reasonableness of the

various assumptions underlying the project should be ascertained. On the long termside, it should be ensure that fund outflow for essential expenditure on fixed asset,

repayment obligation, taxes and dividends are fully provided for that the cash

generation will be adequate. On the short term side, the projected increase in

current liabilities/bank borrowings should be matched by projected increase in the

inventories/receivables.

Cash flow estimates


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It is prepared to ensure that the unit will have necessary cash with it and it will not

face liquidity problem. It is necessary for the construction period also to ensure

availability of cash according to the requirement of the project.

Projected Balance Sheet

In the case of cost of production and profitability estimates and fund flow

projection, the projected balance sheet should be furnished by the company for the

entire period. While appraising the following points will be checked by the bank.

The cost of the project, means of financing, the profitability estimates and the fund

flow projection.

Others (Brief Comment)

i. Quality of Management

Appraiser will briefly comment on the companys management setup, the

composition of the board and the chief executive in-charge of the day-to-dayoperations.

ii. Credit Rating

The bank will do the overall assessment of the company and rate the company

according to the assessment.

Disbursement:


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Execution of loan agreement and other necessary legal documents is not sufficient

for disbursing the amount. Branch will ensure that the amount disbursed is utilised

for the purpose for which it has been sanctioned.

Supervision and Follow-up

Projected supervision and follow-up of assisted project during and after

implementation is indeed a important exercise to performed periodically by bank.

It not only safeguard the interest of the bank but also to ensure optimum returns on

the total investment in project. Even a project well accepted at the appraisal stage

may go bad due to lack of adequate care. Therefore supervision and control duringimplementation is necessary during and after project implementation it will be

done by the bank by following methods.

Scrutiny of progress chart

Analysis of annual financial results

Visit/Inspection, regulatory control

Discussion with management

fund flow and cash flow statement

Documents