A fund flow statement is also known as a cash flow statement, liquidity report or statement of cash flows. The report has many objectives, most of which center on cash management, as well as tools to prevent and detect improper cash remittances in real time. A liquidity report displays three sections: operating, investing and financing cash flows.
Operating Cash Flows
A summary on operating cash flows helps a company’s leadership ease the minds of investors who fret about credit risk or believe the business will not have enough cash to settle its commitments when they become due. By showing more-than-rosy operating flows, top managers ensure that their narrative no longer is in doubt in the investment community. Operating cash flows show money a business receives from customers and vendors (refunds and rebates, for example), as well as cash the company pays to vendors, lenders and service providers -- such as landlords along with utilities and maintenance companies.
Investing Cash Flows
Investing cash flows illustrate tools and strategies a business relies on to make more money, explain to personnel the benefits of making cash honestly, and participate in financial market transactions by selling and buying securities. For example, the organization may buy long-term stocks and bonds and educate employees on the need to avoid insider trading and the regulatory doldrums that might come with the practice. Other investing activities run the gamut from purchases of land and equipment to sales of commercial buildings and residential establishments.
Financing Cash Flows
By preparing accurate financing cash flow summaries, accounting managers signal their continued support for complete, up-to-date liquidity data management. Managers also show the public their moves with respect to shareholder and bondholder relationships. Financing cash movements relate to cash a business receives from common and preferred stockholders along with bondholders. These movements also pertain to cash the organization doles out as dividends or to repurchase previously issued shares. Accountants call these shares “treasury stock.”
Perhaps the ultimate objective of a fund flow statement is calculating a company’s net cash at the end of a given period -- say, a month or quarter. To get that final number, financial managers start with the corporate cash balance at the beginning of the year, adding and subtracting various items to determine the year-end cash amount. Another way of calculating the net cash balance is computing the cash balance for each section of the fund flow statement and adding them up. Besides a fund flow statement, a publicly traded company must publish a balance sheet, a statement of profit and loss and a statement of retained earnings.