Cash and funds have different business functions and help formulate financial strategies. The physical currency available with a business is known as cash. Whereas, the total financial resources available with a business are its funds. Cash flow and fund flow are essential statements to measure the financial health of a company. However, there is a vast difference between cash flow and fund flow. Both statements serve different purposes for adjudging the performance of a business.
What is a Fund Flow?
Fund flow is the working capital of a business and includes the net movement of funds. The fund flow statement records any changes in the company’s net working capital during a given period. The statement can be used to determine the financial position of a company and assists in long-term financial planning. Any irregular financial activity or expense can be detected by studying the fund flow statement. Fund flow is useful to gauge investor sentiment although it is not as comprehensive as a cash flow statement.
What is a Cash Flow?
The cash flow statement is a key document to understand the movement of cash in an organization. It subsequently records the amount of money that has moved in and out of the organization’s accounts over time. The movement of cash may be due to operating, investing, or financing activities. Therefore, the statement is an analytical reconciliation of the opening cash balance and closing balance in a given period. It is among the four most important financial statements for investors. It shows them whether or not there are any potential liquidity problems with the company before investing.
Fund Flow vs Cash Flow
Following are the key differences between fund flow and cash flow:
|Fund Flow||Cash Flow|
|Funds flow statements record the changes in working capital.||Cash flow statements record the movement of cash only.|
|It helps understand the financial position of the company.||It helps understand the net cash flow of the company.|
|The fund flow statement determines the source and application of funds.||The cash flow statement records changes in opening balance and closing balance of cash.|
|It works on the accrual basis of accounting.||It works on a cash basis of accounting.|
|The analysis is for the long term.||The analysis is for a short duration.|
|Fund flow is useful for capital budgeting.||Cash flow is useful for cash budgeting.|