Funds flow statement is one of the tool of management accountant. Hence, it helps many ways to the management and outsiders.
Uses, Benefits, Significance & Importance of Fund flow statement
The following are the uses, significance or benefits of funds flow statement.
1. The financial resources of the company are analyzed in detail and disclose the changes made between the two balance sheet dates.
2. It gives an answer to the question of there is an inadequate liquid cash position in spite of business making more and more profits.
3. It shows the extent funds were received the ways of usage for a specific period.
4. It shows the possibility of paying more dividend than current earnings or paying normal dividend in the presence of net loss for the period.
5. The cost of capital of the business can be computed on the basis of the sources of funds flow statement.
6. It shows the usage of earned profits of the current year.
7. The sources of previous year funds flow statement may act as a guide for getting funds for future requirements.
8. Sometimes, the company has high liquid cash position even though, there is a net loss for the specific period. The reason for such position is find out through funds flow statement.
9. The application of funds can provide a basis for selection of investment proposals or future capital expenditure decisions.
10. The overall credit worthiness of the company can find out on seeing the funds flow statement.
11. The strength and weakness of financial position of the company are identified on seeing the funds flow statement.
12. It helps the management to allot the inadequate resources to meet the requirements of business at productive level.
13. It highlights the financial consequences of business operation.
14. It tests the effective use of working capital by the management during a particular period.
15. It helps the management to frame or change the financial policy of the company.
16. It suggests ways to improve working capital position of the company.