Difference Between Cash Flow and Fund Flow

In the field of financial accounting, these two terms seem to go parallel and have their unique purpose: cash flow and fund flow. It is useful to measure the liquidity of the company.

Both of them help analyse the financial position of the company and regular maintenance of these two terms makes a company withstand long term business.

Let us explore their various scope and purpose in detail.

What is Cash Flow?

The circulation of money in and out of the company refers to cash flow. Inflow defines cash received whereas outflow defines cash spend. 

If you want to see the cash flow of your company for a specific period of time, you can see the statements recorded in the company’s cash flow statement. It is very important to analyse how much a company is generating.

The three main activities involved in cash flow are operation, investment, and finance.

Operational Activities:
Cash created from the primary activities that are crucial for a company’s functioning is included in this category.

Investment Activities:
Cash created from the purchase or sale of any assets is included in this section.

Financial Activities:
Cash created from any transactions of financial products like paying cash dividends, selling or purchasing shares providing loans, etc., are included in this type. 

What is Fund Flow?

Fund flow is used to calculate the net growth of an organisation over a period of time. Analysts subtract the total uses of funds from the total sources of funds to get the net change. You can make this statement periodically to analyse the financial growth of an organisation.

Fund inflows are divided into two types which are meant to be very crucial in business as follows:

1. The funds that are created by different business operations are included in the fund flow.
2. Issuing the shares or fixed assets included in raising the long term funds

The irregular expenses are also identified by using a fund flow statement. It mainly helps investors to examine where capital is needed to invest.

Four key points refer to fund flow:

1. It captures that you have enough money rotation to run your business.
2. Evaluating your financial position.
3. It is done annually or mid annually or quarterly.
4. Very useful for capital budgeting.

Difference Between Cash Flow Statement and Fund Flow Statement

S.No	Cash Flow Statement	Fund Flow Statement
1.	It is an accrual record of financing.	It refers to the differentiation of the working capital of the company over a period of time.
2.	It is useful for Cash budgeting.	It is useful for Capital budgeting.
3.	It helps to analyse the net cash flow of the company.	It helps to analyse the financial position of the company.
4.	It regularly shows the changes in the opening and closing balance of cash.	It depicts the source and application of funds.
5.	It shows the short term financial planning of the business.	It shows the long term financial planning of the business.
6.	The cash flow statement helps in assessing the liquidity of a company as well as acquiring profit and loss statement along with the balance sheet.	The fund flow statement helps in assessing the liquidity of a company as well as acquiring profit and loss statements along with the balance sheet.
7.	Records all inflow and outflow of cash movement.	Records all sources and applications of financial movement.
8.	It doesn’t help to predict the future cash flows of a company.	It helps to reveal the efficiency of a company to generate profitable income with limited resources.
10.	Divided into three parts operating, investing, and financing.	Divided into two parts running capital and long term funds.

Conclusion 

Both Cash flow and fund flow give the financial picture of a company to the investors periodically. The Firm’s performance and long term liquidity are analysed by using the cash flow and fund flow strategies. It is beneficial for investors to invest their valuable money. It also helps an organisation to scan its financial growth periodically.

We hope that this article provides you with an understanding of the foundation of financial planning of an organisation.

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