Cash Flow and Fund Flow Differences
Cash flow refers to the overall cash generated by the firm in a specific accounting period and is calculated as the sum total of cash from operations, cash flow from financing and cash flow from investing activities, whereas, the fund flow of the company records movement of the cash in and cash out from the company during the specified period of time.
Cash flow and fund flow are completely different statements that have varied scopes and serve different purposes.
- The cash flow statement is one of the four important financial statements every investor should look at and it is quite prevalent and useful when one wants to know about the liquidity position of a company.
- On the other hand, the fund flow statement talks about the financial position of a company in a given period of time. It talks about sources of funds and the application of funds.
Cash Flow vs Fund Flow Infographics
Key Differences Between Cash Flow and Fund Flow
- Cash flow statement is one of the four financial statements that every investor looks at to understand the financial position of a company. The fund flow statement, on the other hand, isn’t a financial statement.
- The cash flow statement is prepared so that at the end of a particular period the net cash flow of the company can be calculated. Fund flow statement is prepared to see the sources and uses of funds during a particular period and how that “change in the funds” affects the working capital of the company.
- The cash flow statement is created by following a cash basis of accounting. The fund flow statement, on the other hand, is created by following the accrual basis of accounting.
- The cash flow statement is used for cash budgeting. Fund flow statement is used for capital budgeting.
- The cash flow statement is prepared to see the short-term effect of cash flow. Fund flow statement is prepared for the long-term purpose.
Comparative Table
| Basis for Comparison | Cash Flow | Fund Flow | ||
| Inherent meaning | Cash flow is based on a narrow concept called “cash”. | Fund flow is based on a wider concept called “working capital”. | ||
| Usefulness | The utility of the cash flow statement is to find out the net cash flow. | The utility of fund flow is to understand the financial position of the company. | ||
| Source | The cash flow statement starts with opening balance and after adjustments come out with net cash inflow/outflow. | The fund flow statement calculates the difference between sources of funds and the application of funds. | ||
| WC shown | Shown in the operating activities of the cash flow statement. | Shown in the statement of changes in working capital. | ||
| Type of accounting | Follows the cash basis of accounting. | Follows the accrual basis of accounting. | ||
| Effect | Through cash flow analysis we get to know the net cash flow. | Through fund flow analysis we get to know the change in working capital. | ||
| Is it a financial statement? | Yes. | No. | ||
| Term | Short term analysis of cash flow. | Long term analysis of working capital. | ||
| Used for | Cash budgeting. | Capital budgeting. |
Conclusion
If we compare between cash flow and fund flow, cash flow is more prevalent among investors and more used. But if we look at separately, we will see that both of them serve a meaningful purpose.
Cash flow serves a company and its investors and potential investors by showing exactly how much cash is getting injected into the company and how much cash is being paid. On the other hand, fund flow statement helps a company set up a capital budget and take necessary steps regarding the specific items which affect the “sources & uses of funds” in the company.
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