B Com Exam > B Com Notes > Financial Analysis and Reporting > Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting
Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com PDF Download
Advantages of Funds Flow Statement:
Funds flow statement presents the following advantages:
(a) Fund Generating Capacity:
With the help of cash flows from operating activities, a Funds Flow Statement helps to understand the fund generating capacity of the firm which, ultimately, provides valuable information to the management for taking future courses of action.
(b) Changes in Working Capital Position:
A Funds Flow Statement presents either the increase in Working Capital or Decrease in Working Capital with the help of ‘A Statement of Exchanges in Working Capital’—which helps us to know from which sources the additional Capital has been procured, or the application of such funds.
(c) Projected Funds Flow Statement:
A firm can prepare its expected inflows and outflows of cash for future with the help of a Projected Funds Flow Statement.
(d) Highlights the Causes of Changes:
A Funds Flow statement highlights the significant causes of changes in Working Capital position between two accounting periods revealing the effect for the same on the liquidity and solvency position of a firm.
(e) Evaluation of Credit-Worthiness:
Credit Granting Agencies, after careful analysis of a Funds Flow Statement, can evaluate the creditworthiness of a firm—which helps them to understand the liquidity position.
Question for Advantages and Limitations of Funds Flow Statement - Financial Analysis and ReportingTry yourself: What is one advantage of a Funds Flow Statement?View Solution
(f) Highlight the Causes of the Following Contradictions:
(i) Adequate Cash Reserve but insufficient profit
Or
(ii) Sufficient profit, inadequate cash reserves.
Limitations of Funds Flow Statement:
The Funds Flow Statement is also not free from limitations.
(a) A funds flow statement cannot present a continuous change of financial activities including the changes of working capital.
(b) Since it is based on financial statement (i.e. Income Statement and Balance Sheet), it is not a original statement.
(c) A projected Funds Flow Statement does not always present very accurate estimates about the financial position since it is a historic one.
(d) It is not a substitute of financial statements, i.e. Income Statement and Balance Sheet. It simply supplies information about the change of Working Capital position which, again, depends on the data presented by the financial statements.
(e) Cash Flow Statement, i.e. changes in cash position, is more important or more informative than the changes in working capital which is presented by a Funds Flow Statement.
The document Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com is a part of the B Com Course Financial Analysis and Reporting.
All you need of B Com at this link: B Com
|
2 videos|51 docs|19 tests
|
FAQs on Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting - Financial Analysis and Reporting - B Com
| 1. What is a funds flow statement and why is it important in financial analysis and reporting? |  |
Ans. A funds flow statement is a financial statement that shows the changes in a company's financial position by analyzing the inflow and outflow of funds during a specific period. It is important in financial analysis and reporting as it helps in understanding the sources and uses of funds, identifying the reasons for changes in a company's cash position, and evaluating its ability to generate and manage cash flows.
| 2. What are the advantages of using a funds flow statement in financial analysis? | |
Ans. The advantages of using a funds flow statement in financial analysis include:
- Helps in identifying the sources of funds: It provides information about the inflow of funds from various activities such as operating activities, borrowing, or sale of assets. This helps in understanding the financial health of the company and its ability to finance its operations.
- Highlights the uses of funds: It shows how funds are being utilized by the company, whether for operating expenses, capital expenditures, debt repayment, or dividend payments. This helps in evaluating the efficiency of resource allocation and the company's financial decisions.
- Assists in cash flow management: By analyzing the funds flow statement, companies can identify periods of cash surplus or deficit. This helps in planning and managing cash flows effectively, ensuring the availability of funds for operational needs and investment opportunities.
- Facilitates comparison over time: Funds flow statements can be prepared for multiple periods, allowing for a comparison of the changes in the company's financial position over time. This enables trend analysis and helps in assessing the financial performance and stability of the company.
- Provides supplementary information: In addition to the income statement and balance sheet, a funds flow statement provides supplementary information about the financial position and performance of the company. It enhances the understanding of the company's cash flow dynamics and helps in making informed financial decisions.
| 3. What are the limitations of funds flow statement in financial analysis? | |
Ans. The limitations of using a funds flow statement in financial analysis include:
- Limited focus on cash flows: While a funds flow statement provides information about the sources and uses of funds, it does not provide a detailed analysis of cash flows. It focuses more on the changes in working capital and long-term funds, and may not reflect the actual cash position of the company accurately.
- Historical nature: A funds flow statement is prepared based on historical data, which may not reflect the current or future financial position of the company. It may not capture the dynamic nature of cash flows and financial activities, limiting its usefulness in predicting future cash flows.
- Subjectivity in classification: The classification of funds into different categories in a funds flow statement involves subjective judgment. This can lead to variations in interpretation and may affect the comparability of funds flow statements prepared by different companies.
- Ignores non-cash transactions: A funds flow statement focuses on cash inflows and outflows, ignoring non-cash transactions such as depreciation, changes in market value of investments, or changes in working capital due to changes in inventory or accounts payable. This may result in an incomplete picture of the company's financial position.
- Reliance on historical cost: The funds flow statement is prepared based on historical cost, which may not reflect the current market value of assets and liabilities. This can affect the accuracy of the financial analysis and reporting.
| 4. How can a funds flow statement be used in financial analysis and reporting for decision-making? | |
Ans. A funds flow statement can be used in financial analysis and reporting for decision-making in the following ways:
- Assessing liquidity and solvency: By analyzing the sources and uses of funds, a funds flow statement helps in evaluating a company's liquidity position and its ability to meet short-term obligations. This information is crucial for making decisions regarding working capital management, debt repayment, or seeking additional financing.
- Evaluating investment opportunities: A funds flow statement provides insights into how funds are being utilized by the company, including investments in fixed assets or acquisitions. By assessing the impact of these investments on the company's cash flows, decision-makers can evaluate the potential returns and risks associated with different investment opportunities.
- Identifying financial constraints: By analyzing the funds flow statement, decision-makers can identify periods of cash shortage or excess. This helps in identifying financial constraints that may impact the company's ability to pursue growth opportunities, make dividend payments, or repay debts. It enables proactive decision-making to address these constraints and ensure the financial stability of the company.
- Monitoring financial performance: Funds flow statements can be prepared for multiple periods, allowing for the monitoring of changes in the company's financial position over time. Decision-makers can use this information to assess the financial performance of the company, identify trends, and make necessary adjustments to achieve financial objectives.
- Supporting strategic planning: A funds flow statement provides valuable information about the company's financial resources and how they are being utilized. This information can support strategic planning by helping decision-makers align financial resources with strategic goals, evaluate the financial feasibility of different strategies, and make informed decisions regarding resource allocation.
| 5. Are funds flow statements mandatory in financial analysis and reporting for B Com exams? | |
Ans. The inclusion of funds flow statements in financial analysis and reporting for B Com exams may vary depending on the specific curriculum or educational institution. While funds flow statements are an important tool in financial analysis, the focus of B Com exams may vary and may not specifically require the preparation or analysis of funds flow statements. It is advisable to consult the exam syllabus or guidelines provided by the educational institution to determine the specific requirements for financial analysis and reporting in B Com exams.
Related Exams
About this Document
|
5.3K Views |
|
4.95/5 Rating |
|
Nov 22, 2024 Last updated |
Document Description: Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting for B Com 2024 is part of Financial Analysis and Reporting preparation.
The notes and questions for Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting have been prepared according to the B Com exam syllabus. Information about Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting covers topics
like and Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting Example, for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting.
Introduction of Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting in English is available as part of our Financial Analysis and Reporting
for B Com & Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting in Hindi for Financial Analysis and Reporting course.
Download more important topics related with notes, lectures and mock test series for B Com
Exam by signing up for free. B Com: Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com
Description
Full syllabus notes, lecture & questions for Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com - B Com | Plus excerises question with solution to help you revise complete syllabus for Financial Analysis and Reporting | Best notes, free PDF download
Information about Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting
In this doc you can find the meaning of Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting defined & explained in the simplest way possible. Besides explaining types of
Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting theory, EduRev gives you an ample number of questions to practice Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting tests, examples and also practice B Com
tests
|
Explore Courses for B Com exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
Related Searches
Extra Questions
,Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com
,video lectures
,practice quizzes
,Exam
,Summary
,past year papers
,MCQs
,Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com
,Important questions
,Semester Notes
,Objective type Questions
,study material
,Viva Questions
,Free
,Previous Year Questions with Solutions
,ppt
,mock tests for examination
,Sample Paper
,shortcuts and tricks
,Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com
;
Additional Information about Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting for B Com Preparation
Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting Free PDF Download
The Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting is an invaluable resource that delves deep into the core of the B Com exam.
These study notes are curated by experts and cover all the essential topics and concepts, making your preparation more efficient and effective.
With the help of these notes, you can grasp complex subjects quickly, revise important points easily,
and reinforce your understanding of key concepts. The study notes are presented in a concise and easy-to-understand manner,
allowing you to optimize your learning process. Whether you're looking for best-recommended books, sample papers, study material,
or toppers' notes, this PDF has got you covered. Download the Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting now and kickstart your journey towards success in the B Com exam.
Importance of Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting
The importance of Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting cannot be overstated, especially for B Com aspirants.
This document holds the key to success in the B Com exam.
It offers a detailed understanding of the concept, providing invaluable insights into the topic.
By knowing the concepts well in advance, students can plan their preparation effectively.
Utilize this indispensable guide for a well-rounded preparation and achieve your desired results.
Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting Notes
Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting Notes offer in-depth insights into the specific topic to help you master it with ease.
This comprehensive document covers all aspects related to Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting.
It includes detailed information about the exam syllabus, recommended books, and study materials for a well-rounded preparation.
Practice papers and question papers enable you to assess your progress effectively.
Additionally, the paper analysis provides valuable tips for tackling the exam strategically.
Access to Toppers' notes gives you an edge in understanding complex concepts.
Whether you're a beginner or aiming for advanced proficiency, Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting Notes on EduRev are your ultimate resource for success.
Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting B Com Questions
The "Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting B Com Questions" guide is a valuable resource for all aspiring students preparing for the
B Com exam. It focuses on providing a wide range of practice questions to help students gauge
their understanding of the exam topics. These questions cover the entire syllabus, ensuring comprehensive preparation.
The guide includes previous years' question papers for students to familiarize themselves with the exam's format and difficulty level.
Additionally, it offers subject-specific question banks, allowing students to focus on weak areas and improve their performance.
Study Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting on the App
Students of B Com can study Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting alongwith tests & analysis from the EduRev app,
which will help them while preparing for their exam. Apart from the Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting,
students can also utilize the EduRev App for other study materials such as previous year question papers, syllabus, important questions, etc.
The EduRev App will make your learning easier as you can access it from anywhere you want.
The content of Advantages and Limitations of Funds Flow Statement - Financial Analysis and Reporting is prepared as per the latest B Com syllabus.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup