Difference Between Cash Flow and Fund Flow

You must have heard the terms – Cash Flow and Fund Flow. But are you aware of the difference between cash flow and fund flow? If not, then don’t worry. This article will explore the difference between cash flow and fund flow in detail.

The main difference between cash flow and fund flow is that cash flow records the movement of cash into and out of business. In contrast, fund flow records the changes in a company’s financial position over a period of time.

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Before we dive deeper into the article, let’s quickly go over the topics listed in the table of contents that we will cover in this article.

Table of Contents (TOC)

• Difference Between Cash Flow and Fund Flow
• What is Cash Flow?
• Cash Flow Example
• What is Fund Flow?
• Fund Flow Example
• Key Differences Between Cash Flow and Fund Flow
• Conclusion

Difference Between Cash Flow and Fund Flow 

For a better understanding, let’s cover the differences in a tabular format. Here’s the table:

What is Cash Flow? 

Cash flow definition: Cash flow is a type of financial statement that records the movement of cash into and out of business. 

In layman’s terms, cash flow measures the cash coming in (revenues) and going out (expenses) of a company over time. Using this statement, you can easily judge or evaluate a company’s ability to generate cash.

The generated cash can then be used by the company or the business in order to perform various activities, such as paying bills, investing in various operations, returning money to shareholders, etc. In simple words, cash flow is focused on the cash a company has on hand.

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Cash Flow Example

Suppose you are a small shop owner with a cash inflow of ₹5000 from sales in a given month. And you spend about ₹3000 in paying rent and maintaining inventory. So, the shop’s cash flow for that month would be ₹2000 (5000-3000).

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What is Fund Flow? 

Fund flow definition: Fund flow is a type of financial statement that records the changes in a company’s financial position over a period of time.

In layman’s terms, this flow measures the inflow and outflow of money (cash) and other financial resources, such as loans and investments, over a period of time. Using this statement, you can easily judge or evaluate a company’s ability to raise funds and manage its financial resources. In short, fund flow is focused on the company’s overall financial position.

In order to understand fund flow in a better way, let’s go through an example in the next section.

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Fund Flow Example

Suppose you are the owner of a manufacturing company. The manufacturing company has ₹100000 cash, ₹50000 worth of inventory, ₹20000 accounts payable, ₹40000 accounts receivable, ₹200000 fixed assets, ₹100000 long term debt, and ₹150000 equity.

So, the company’s fund flow = (cash+inventory+accounts receivable- accounts payable- long term debt – fixed assets) = ₹(100000+50000+20000 ) – ₹(40000 -100000- 200000) = ₹50000.

In short, you can calculate fund flow by subtracting the total liabilities from the total assets.

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Key Differences Between Cash Flow and Fund Flow 

Here are the key differences between cash flow and fund flow:

• Fund flow is not included in the financial statement, whereas cash flow is included.
• You can use cash flow for cash budgeting, and you use fund flow for capital budgeting.
• Cash flow calculates cash from the operation, but fund flow calculates funds from the operation.
• Cash flow helps in understanding the net cash flow of the company. In contrast, fund flow helps understand the business’s financial position.
• Cash flow records the movement of cash into and out of business. In contrast, fund flow records the changes in a company’s financial position over a period of time.

Conclusion

Both of these types of flows are important indicators of a company’s financial performance. But there is a significant difference between cash flow and fund flow as both provide different types of information.

Cash flow is a measure of the movement of money into and out of a business or individual’s possession. And it’s of two types: cash flow from operating activities and cash flow from investing and financing activities.

On the other hand, fund flow measures the change in the level of a company’s cash and cash equivalents during a period. And this flow acts as an indicator to measure a company’s liquidity.