Difference Between Cash Flow and Fund Flow


In accounting, there is a wide variety of statements present. Cash flow statement, fund flow statement, income statement — to name a few. The first two terms mentioned are somehow mistaken and confused because of their names, especially for people that are new in the field of business. Thus, for further understanding, we have provided you a comprehensive explanation about cash flow and fund flow and how they vary from each other.

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The Difference Between Cash Flow and Fund Flow

In financial accounting, cash flow means the modification in a business institution’s cash and coequals from time to time. Fund flow, on the other hand, registers the activities of money that comes in and out of business.

Moreover, it has two diverse functions. One is for accounting, while the other is for investment. Thus, to wrap it up, both are statements that give the investors and possible clients an overview of the well-being of the company periodically but represent two different factors.

Cash Flow

Cash flow is the net amount of money that moves in and out of a company at any particular time. Is gives business owners a more precise grasp of their company’s flexibility, solvency, and total performance when it comes to financing. Companies must strive for positive cash flow if they want to remain in the field of business. Moreover, cash flow is different from the income statement of a company. It is because the latter is based on the principles of accrual accounting, which rectify expenses and evens profits to the period when the goods or services are delivered.

The Types of Cash Flow

There are many kinds of cash flow; hence, making it crucial to have a firm grasp of what every CF is. Listed below are the types of cash flow with their corresponding formulas:

  • Free Cash Flow (FCF) – It is basically a measurement of financial performance. It presents what cash the business establishment has left for expansion or give back to shareholders, after paying profits, repurchasing the stock, or paying the debt off. The formula is FCF = Operating Cash Flow − Capital Expenses − Dividends.
  • Free Cash Flow to Equity (FCFE) – It measures the amount of money available to the equity shareholders of a business institution after all reinvestments, debts, and expenditures are paid. It has a formula of FCFE = Cash from operations − Capex + Net debt issued.
  • Free Cash Flow to the Firm (FCFF) – It is the measurement of a business’s profitability after all expenditures and reinvestments. It shows the amount of cash flow from business operations available for dissemination after the time when the depreciation expenditures, investments, working capital, and taxes are accounted for and paid. Its formula is FCFF = NI + NC + (I × (1 − TR)) − LI − IWC.
  • Net Free Cash Flow – It is a free cash flow less than the present portion of the long-time debt, and the business currently aims to pay. The formula is NFCF = FCF − Current Long-term Debt Portion − Current Future Dividends Portion.
  • Cash Flow From Operations – It measures the money produced from the core business or activities of the company. It is a part of the cash flow statement with a formula of CFO = Net Income + Depreciation & Amortization ± 1 Time Adjustments ± Changes in Working Capital.

The Uses of Cash Flow

Cash flow has several uses when it comes to business operations and financial analysis performance. As a matter of fact, it is one of the most crucial criteria in the world of finance and accounting.

The following are the most basic cash flow usage and cash metrics:

  • Cash Conversion Ratio – It is the amount of time between the period the company pays for the inventory and receives payment from buyers.
  • Capital Expenditures – Cash flows can also be utilized to sponsor reinvestment and expansion in the company.
  • Cash Flow Per Share (CFPS) – It is the money from activities of the business operation, which is divided by the number of outstanding shares.
  • Cash Flow Yield – It measures the amount of cash a company produces per share, concerning its share price, shown in percentage.
  • Dividend Payments – Cash flow can be harnessed to support dividend payments to investors or stockholders.
  • Funding Gap – It is a measurement of the shortage of a business that it needs to overcome. In other words, it is the amount of money a company needs.
  • Internal Rate of Return – It identifies the internal rate of return (IRR) which an investor accomplishes because of making an investment.
  • Liquidity – It evaluates the capability of a business to meet its financial obligations on a short-term basis.
  • Net Present Value – It determines the worth of a company by constructing a DCF Model and computing the NPV or net present value.
  • P/CF Ratio – It is the price of a supply divided by the cash flow per share; it is often used as a substitute for the Price-Earnings ratio.

Fund Flow

The net of the total cash inflows and outflows of different assets of finance. It is basically measured every month or quarter. The performance of funds or capital is not taken into consideration, only the redemption of a share and purchase of a stock. Moreover, it centers solely on the movement of money, reflecting the net flow after studying both flows of the financial funds. The funds that are scheduled to be paid but are not settled yet are beyond the scope of fund flow.

Statements of Fund Flow

Fund flow statements are the exposure to the experiences of the various kinds of inflows and outflows of a company. It is a convention in which to present data that concerns any extraordinary fund flow events. For example, an outflow that is greater than anticipated because of an irregular disbursement. Additionally, it helps trace any event or operation change through categorizing the different sources and kinds of transactions frequently.

Changes in Fund Flow

The change in a fund flow frequently represents a change in a buyer’s conviction. This can be related to any occurring event such as new product or service launch, alterations of a particular good or service, the latest news concerning the business, or a general emotional shift in the industry. A positive fund flow change marks a growth in the inflow, reduction of outflow, and even a mixture of both. On the contrary, a negative outflow notes a decrease in inflow, an increase in outflow, or a combination of both. It is because the positivity and negativity of outflow are inversely proportional to each other.

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