However, the technique of cash flow statement when used in conjunction with ratio analysis serves as barometer in measuring the profitability and financial position of the business.
Preparation of fund flow statement
The preparation of fund flow statement has the following steps-
A) Schedule of changes in working capital-
B) FUND flow Statement
A) Schedule of hanges in Working Capital–
It can be prepared by comparing the current assets and current liability of two periods.
Net increase/ decrease in Working Capital
Rules for preparing the schedule-
i) An increase in current assets results in increase in working cpital.
ii) Decrease in current assets result in decrease in working capital
iii) Increase in a current liability results in decrease of working capital.
iv) Decrease in a current liabilities results in increase in working capital.
B) FUND FLOW STATEMENT
Source of Funds:
Issue of shares
Issue of debenture
Long term borrowing
Sale of fixed assets
Application of Funds-
Redemption of redeemable preference shares
Redemption of debentures
Payment of other long term loans
Purchase of Fixed Assets
Payment of Dividends, Tax etc
Net increase/ Decrease in working capital
( Total Sources – Total Uses)