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FINANCIAL ANALYSIS –
USING TOOLS SUCH AS
CASH FLOW & FUND FLOW
No flow of funds
Non -
Current
Current
Assets
Assets
Non-
Current
Current
Liabilities
Liabilities
Redemption of debentures
To Appropriation of retained
earnings
- General Reserve
- Dividend Eq Fund
- Sinking fund etc
Prof. Prakash K Kankure, M Com, CWA(In) MBA
Adjusted Profit and Loss A/c
Rs. Rs.
To Dividend Paid
To Provision for Taxation
To Interim Dividend
To Proposed Dividend
To Net profit c/d (i.e. current year)
To Funds Lost in operation
(Balancing figure)
Total Total
Note: Proposed Dividend and provision for taxation may or may not be current liability.
In case if they are treated current liabilities, they should be shown in schedule of
changes in working capital only.
However, if they are treated noncurrent liabilities, then they should be considered as
internal appropriation of profits made during the year and should be added back to
current years profit while calculating funds from operations. But tax paid during the
year should be considered as application of fund.
Prof. Prakash K Kankure, M Com, CWA(In) MBA
Issue of Shares
If there is any increase in share capital (may be equity
or preference) it is due to the fresh issue of shares
during the current year. As a result, there is inflow of
funds. Hence, such an increase in the share capital
should be treated as source of funds.
The fresh issue of shares may be made (a) at par (b) at
premium or (c) at discount.
In all these cases there is source of funds. If there is any
call money received in respect of partly paid shares, it
results in the inflow of funds. Hence, it becomes a source
of funds.
Prof. Prakash K Kankure, M Com, CWA(In) MBA
Issue of Shares
However, in case, if there is any cross transaction as
to issue of shares such as:
(a) Issue of shares against purchase of fixed assets or
non current assets, it does not result in the inflow of
funds. Hence, it may be ignored while preparing
the funds flow statement.
(b) If there is conversion of existing debentures into
shares or vice versa, it does not result in the flow
of funds. Hence, it may be ignored while
preparing funds flow statement.