ittech: FUND FLOW ANALYSIS

ittech: FUND FLOW ANALYSIS.

 

Meaning –The most commonly accepted meaning of the term fund is the working capital of the business which denotes excess of current assets over current liability.

There will be a flow of fund in case the working capital position of the company changes on account of any transaction.

Example -I- The company realizes Rs20000/- from its debtors. The transaction will reduce the debtors from Rs80000 to 60000 but increase the cash balance from the present balance of Rs 20000 to Rs40000. Thus the total current assets continue at the old figure of Rs 30000 . This means this transaction will not bring any change in the working capital of the company. It is simply a conversion of current assets in to another current asset.

Thus there is no flow of fund.

Example-II- The company sells its building having a book value of Rs50000 at sum of Rs 60000. This transaction will cash balance with the company from Rs20000 to Rs80000.The total current assets will be increased by Rs60000. Thus the transaction has brought a change in working capital position .

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