Importance Of Funds Flow Statement

Funds flow statement is an important financial tool, which analyze the changes in financial position of a firm showing the sources and applications of its funds. It provides useful information about the firm's operating, financing and investing activities during a particular period. The following points highlight the importance of funds flow statement.

1. Funds flow statement helps in identifying the change in level of current assets investment and current liabilities financing.
2. Funds flow statement helps in analyzing the changes in working capital level of a firm.
3. Funds flow statement shows the relationship of net income to the changes in funds from business operation.
4. Funds flow statement reports about past fund flow as an aid to predict future funds flow.
5. Funds flow statement helps in determining the firms' ability to pay interest and dividend, and pay debt when they become due.
6. Funds flow statement shows the firms' ability to generate long-term financing to satisfy the investment in long-term assets.
7. Funds flow statements helps in identifying the factor responsible for changes in assets, liabilities and owners' equity at two balance sheet date.