Difference Between Cash Flow and Fund Flow Statement

Cash flow shows actual cash movement in a period, while fund flow explains changes in financial position between two balance sheets.
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Difference Between Cash Flow and Fund Flow Statement
3 mins
28-June-2025

Key takeaways

  • Cash flow records a company's inflow and outflow of actual cash (cash and cash equivalents).
  • Fund flow is the working capital of a business and includes the net movement of funds.
  • Fund flow records the movement of cash in and out of the company.
  • Cash flow shows if a company can pay bills now, while fund flow is for long-term financial planning.

A cash flow and fund flow statement both show money movement, but in different ways. Cash flow shows actual cash coming in and going out. Fund flow shows changes in the overall financial position. Knowing the difference between cash flow and fund flow helps understand a company’s money better.

What is fund flow Statement?

A Funds Flow Statement is a financial document that analyses the movement of financial resources within a company by comparing its balance sheets across two different periods. It outlines the sources from which funds were generated and the ways in which they were utilised during the financial year. This report provides a clearer picture of changes in the company’s financial position beyond what the income statement or balance sheet alone can show. Fund flow statements are typically used to assess long-term financial stability and the allocation of funds for various activities within the organisation.
Fund flow analysis can help investors and analysts understand how funds are being utilised by companies, offering valuable insights into their financial health and investment potential.

What is Cash flow Statement?

Cash flow, on the other hand, is a financial statement that focuses solely on the movement of cash in and out of a business during a given period. It provides a snapshot of a company's liquidity and its ability to meet short-term financial obligations. Cash flow statements are crucial for assessing a company's ability to generate cash and are often used by investors to determine if a company can meet its immediate financial needs.

In the Indian stock market, cash flow analysis plays a critical role in evaluating the short-term financial viability of companies, making it an essential tool for traders and short-term investors.

Additional read: What is Return on Equity

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Differences between cash flow statement and fund flow statement

Cash flow vs fund flow are both financial statements that provide insights into a company's financial health, but they serve different purposes and focus on different aspects of the business's financial activities. Here’s a list of differences between fund flow and cash flow:

Aspect

Cash flow statements

Fund flow statements

Scope

Deals only with cash transactions

Encompasses cash and non-cash items

Purpose

Assess short-term liquidity

Focus on long-term financial stability

Timing

Reports cash position at a specific point in time

Analyzes changes over a longer timeframe

Components

Operating, investing, financing activities

Various sources and applications of funds

Inclusion of non-cash items

Exclude depreciation and similar items

Incorporate non-cash items for a holistic view

Assessment of short-term vs. long-term

Suited for short-term liquidity

Provides insights into long-term stability

Analysing changes

Mainly focuses on cash changes

Focuses on changes in entire fund position

Investor focus

Attracts short-term investors and traders

Valuable for long-term investors and analysts

Investment decisions

Aids in short-term investment decisions

Useful for strategic long-term investment choices

Regulatory requirements

Mandatory under Indian accounting standards

Not mandatory in India

 

Advantages of cash flow statements

Since a cash flow statement presents actual inflows and outflows, it offers a more realistic view of a company’s financial health and profitability. It also helps assess whether the business has enough cash to maintain operations and meet obligations.

  1. Liquidity assessment: Cash flow statements provide a clear picture of an entity's short-term liquidity, helping businesses and investors assess their ability to meet immediate financial obligations.
  2. Immediate decision-making: These statements are valuable for short-term investment and operational decisions, enabling quick evaluations of a company's cash position.
  3. Simple and direct: Cash flow statements are relatively straightforward, making them easy to understand for both financial professionals and non-experts.

Disadvantages of cash flow statements

There are two major disadvantages of cash flow statements. They can be stated as:

  1. Limited scope: They primarily focus on short-term financial health, offering little insight into long-term financial stability or capital allocation.
  2. Excludes non-cash items: Cash flow statements do not consider non-cash items like depreciation, which can impact a company's overall financial health.

Advantages of fund flow statements

Fund flow analysis helps track changes in working capital and long-term financing, offering insights into operational and investment decisions. It enables better liquidity planning by showing how funds are sourced and utilised across business functions.

  1. Holistic view: Fund flow statements offer a comprehensive view of an entity's financial position, considering both cash and non-cash items, which is essential for assessing long-term financial stability.
  2. Strategic planning: They are valuable for long-term investment decisions and strategic planning, helping businesses allocate funds efficiently.
  3. Allocation analysis: Fund flow statements allow for the analysis of how funds are utilised within an organisation, providing insights into capital allocation.

Disadvantages of fund flow statements

Disadvantages of fund flow statements can be mentioned as the following:

  1. Complexity: These statements can be more complex and time-consuming to prepare and analyse compared to cash flow statements.
  2. Not mandatory: Unlike cash flow statements, fund flow statements may not be mandatory for all companies, leading to potential inconsistencies in reporting.
  3. Limited scope: Fund flow statements focus mainly on changes in working capital and long-term funds, missing out on daily liquidity positions and real-time cash movement insights.
  4. Historical nature: These statements are retrospective and show what has already happened, offering limited value for immediate or real-time decision-making needs.
  5. Dependence on accurate data: The reliability of a fund flow statement depends heavily on the availability and accuracy of accounting data, which may not always be consistent or timely.

Conclusion

While both cash flow and fund flow statements serve their unique purposes, investors and analysts should leverage them in tandem to gain a comprehensive view of a company's financial health. The cash flow statement is most effective for assessing a company's liquidity, while the fund flow statement is more suitable for long-term financial planning. By utilising both statements effectively, investors can navigate the complexities of the stock market with greater precision.

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Frequently asked questions

What is the difference between cash flow in and cash flow out?

Cash flow in is the money a business receives from various sources like sales, investments, or financing. It boosts the company’s available cash. In contrast, cash flow out represents all the money spent—such as payments for salaries, utilities, inventory, or debt repayments. Together, these flows help assess a firm’s liquidity position and its ability to meet short-term obligations without external support.

What is the difference between cash and funds?

Cash specifically refers to physical money and balances readily available in hand or in bank accounts. Funds, on the other hand, is a broader term encompassing all financial resources a business can access—including cash, credit lines, investments, and other monetary instruments. While cash is immediately liquid, funds include resources earmarked for operations, expansion, or other financial obligations, offering a comprehensive view of available capital.

What is the difference between fund flow and cash flow statement?

A cash flow statement details a company's cash inflows and outflows within a specific period, focusing on liquidity. A fund flow statement analyses changes in working capital over time, highlighting sources and uses of financial resources.

What is the formula for cash flow?

The formula for free cash flow is provided below:

Free Cash Flow = NI + (D/A) - ΔWC - CE

Where

  • NI is the net income, which is the profit or loss incurred by the company after deducting all of its expenses.
  • D and A are depreciation and amortisation, respectively. Depreciation represents the decrease in the value of a current asset over time. On the other hand, amortisation refers to the spreading of the cost of an intangible asset over its lifetime.
  • ΔWC is the change in working capital. Working capital refers to the money used by a business for running its daily activities.
  • CE is the capital expenditure, which represents fixed business assets, such as land and equipment.
What are the disadvantages of a fund flow statement?

The fund flow statement, while useful for tracking sources and uses of funds, has certain limitations. It cannot replace the balance sheet or profit and loss statement, as it focuses mainly on long-term financial movements rather than operational performance. Additionally, it does not show cash positions in real-time and may overlook short-term liquidity issues, making it less useful for day-to-day financial decisions.

What is the flow of cash funds?

The flow of cash funds refers to the movement of money into and out of a business. It includes cash generated from operations, investments, and financing activities, reflecting a company’s liquidity and financial health over a period.

How to calculate fund flows?

To calculate fund flows, determine the net movement of money into or out of an investment fund during a specific period, usually monthly or quarterly. This is done by subtracting the total value of redemptions (withdrawals) from the total value of new investments (contributions). A positive figure indicates net inflow, while a negative figure reflects net outflow, helping assess investor sentiment and fund performance over time.

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