Importance And Utility Of Funds Flow Analysis

 This analysis helps financial managers to find answers to questions like:

(i)        how far capital investment has been supported by long term financing?

(ii)       how far short-term sources of financing have been used to support capital investment?

(ii)      how much funds have been generated from the operations of a business?

(iii)    to what extent the enterprise has relied on external sources of financing?

(iv)    what major commitments of funds have been made during the year?

(v)      where did profits go?

(vi)    why were dividends not larger?

(vii)  how was it possible to distribute dividends in excess of current earnings or in the presence of a net loss during the current period?

(viii)why are the current assets down although the income is up?

(ix)    has the liquidity position of the firm improved?

(x)      what accounted for an increase in net current assets despite a net loss for the period?

(xii)  how was the increase in working capital financed?