Flow Fund flow refers to movement of funds in working capital in the normal
course of business
transactions. The changes in working capital may be in the form
of inflow of working capital or outflow of working capital. If the
component of working capital results in increase of the fund, it is known as inflow of fund. Similarly, if
the
components
of working capital effects in
decreasing the financial position it is treated as outflow of
fund.
The importance's to uses of fund flow statement for a bank are as follows:
1) It highlights the different sources and uses
of funds between the two
accounting period.
2) It brings into light about financial strength and weakness.
3) It acts as an effective tool to measure the causes
of changes in working
capital.
4) It helps the management to take corrective actions while deviations between two balance sheets figures.
5) It also presents detailed information about profitability, operational efficiency,
and so on.
6) It serves as
a guide to the management to formulate its dividend policy,
retention policy and investment policy etc.
7) It helps to evaluate the financial consequences of
business transactions
involved in operational finance and investment.
8) It gives the detailed explanation about movement of
funds
from
different sources
and uses of
funds.