Difference Between Cash Flow and Fund Flow

Both Cash and Fund flow as concepts are fundamental to the discipline of accounting. These ratios are important in assessing the liquidity position of a company. Cash flow refers to a firm’s inflow and outflow of cash and cash equivalents during a specific period whereas Fund flow records the changes in the working capital over a time period.

What is Cash Flow?

The cash flow statement is one of the most important financial statements to gauge the movement (inflow & outflow) of cash in an organization in a specific period (Annually, Semi-annually, quarterly).

Cash Flow movement in an organization could be due to operating, investing, and financial activities. One of the main purposes of financial reporting is to evaluate the quantities, timing, and uncertainty of cash flows, their place of origin, and where they go. It helps an investor to assess the company’s current liquidity position & arrive at a decision on whether to invest in it or not.

  • Cash flow statements record the cash movement only.
  • Cash flow enables you to gauge the net cash flow of the firm.
  • The analysis done is for a short period of time.
  • The cash flow statement captures the changes in the opening and closing balance of cash.

What is Fund Flow?

It refers to the working capital of an organization and it consists of the net movement of funds (inflow and outflow). A fund flow statement is prepared periodically to keep a track of financial position of the company & helps in long-term financial planning. Any irregularities in fund movement can be identified by studying the fund flow statement. Investors use fund flow information to understand where capital needs to be invested.

  • It captures the changes in working capital.
  • Fund flow helps in understanding the financial position of the firm.
  • The analysis done is for the long term.
  • This is beneficial for capital budgeting.

Cash Flow vs Fund Flow: Key Differences

Cash Flow Statement Fund Flow Statement
It denotes the inflow & outflow of cash equivalents during a specific period This is based on the concept of variations in the working capital over a time period
This helps in cash budgeting This helps in capital budgeting
It helps gauge the net cash flow of the company It helps gauge the financial position of the company
The cash flow statement documents the changes in the opening and closing balance of cash The fund flow statement captures the source and application of funds
All kinds of disclosures regarding cash inflow and outflow are done under cash flow. Fund flow helps in the disclosure and identification of every source of generation of funds.
Cash flow is a part of the financial statement. Fund flow is not a part of the financial statement.
Cash flow statement is made for short-term financial planning and decision-making A fund flow statement is used to make long-term planning and decision-making

Advantages of Cash Flow Statement

  • A cash flow statement is useful for assessing the liquidity and profitability of the businesses
  • Cash flow statement helps in assessing the Profit & Loss statement and the Balance Sheet by denoting the cash movement in and out of the business.

Disadvantages of Cash Flow Statement

  • As it only depicts cash position, it isn’t possible to find out the profit and loss of a company by just having a look at the statement.
  • Liquidity or solvency position of a company cannot be assessed with a cash flow statement as it presents only the cash position at the end of the period. It does not represent the liquidity position.
  • Since the cash flow statement is prepared based on the historical cost, therefore, it doesn’t help in understanding the future/projected cash flows.

Advantages of Fund Flow Statements

  • A fund flow statement is useful for understanding the fund-generating capacity of the company that ultimately gives valuable information to the management to take future course of action.
  • A fund flow statement is useful for the management in taking decisions regarding the resource usage. That will help in the allocation of limited resources accordingly.
  • As the fund flow statement depicts the utilization of the available capital, it also reveals the efficiency and helps draw insights to the Working Capital Management of the company.

Disadvantages of Fund Flow Statements

  • The data used is historic in nature and shows the historical stance; there’s little clarity on the current and future costs of the company.
  • As the fund flow statement only provides an idea of the changes in the company’s working capital, it can’t be used separately without a balance sheet and a P&L (Profit & Loss) statement. Therefore, a fund flow statement cannot be a substitute for financial statements.


Both Cash and Fund flow facilitate investors with a periodic picture of the performance of a firm. Strategies devised on the basis of cash and fund flow analysis can prove to play a vital role in a firm’s performance and liquidity in the long-run.

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