Sources and Uses of Funds Statement: Definition & Explanation

A sources and uses of funds statement is a summary of a firm’s changes in financial position from one period to another. It is also called a flow of funds statement or a statement of changes in financial position. It has been replaced by the cash flow statementCash Flow Statement​A cash flow Statement contains information on how much cash a company generated and used during a given period. (1989) in US audited annual reports.

The cash flow statement shows a business’s cash inflow and cash outflow over an accounting period, normally a quarter or a year. A cash flow statement provides information about the changes in cash and cash equivalents of a business by classifying cash flows into operating, investing, and financing activities. It is a key report to be prepared for each accounting period for which financial statements are presented by an enterprise.

Monitoring the cash situation of any business is key. The income statementIncome StatementThe Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. The profit or reflects profit but does not give any indication of the cash components. The important information of what the business has been doing with its cash is provided by the cash flow statement. Like the other financial statements, the cash flow statement is usually drawn up annually but can be drawn up more frequently.

It is noteworthy that the cash flow statement covers the flows of cash over a period of time (unlike the balance sheet that provides a snapshot of the business at a particular date). Also, the cash flow statement can be drawn up in a budget form and later compared to actual figures.

What the Sources and Uses of Funds Statement Tells You

The cash flow statement indicates where a company got its money from and how it was spent. All cash received (inflows) by the company and spent (outflows) by the company is shown in this statement. The statement is created by listing the changes that have occurred in all of the balance sheet items between any two balance sheetBalance SheetThe balance sheet is one of the three fundamental financial statements. The financial statements are key to both financial modeling and accounting. dates.

The cash flow statement shows how changes in balance sheet accounts can affect the cash which is available to a business. The projections in the statement help businesses, especially when planning short-term goals or investments, to see the current cash available for such actions. Management or investors can use the cash flow statement to pick up healthy or unhealthy trends regarding a company’s trading activities.

What the Statement is Composed Of

Generally, the statement consists of two sections: the source (where the money has come from) and the application (where the money has gone).

The sources of funds originate from:

• A decrease in liabilities or an increase in assets
• Net income after tax
• The disposal or revaluation of fixed assets
• Proceeds of loans obtained
• Proceeds of shares that were issued
• Repayments received on loans previously granted by the company
• Any increase in net working capital

The application of funds includes:

• Losses to be met by the company
• The purchase of fixed assets/investments
• The full or partial payment of loans
• Granting of loans
• Liability for taxes
• Dividends paid or proposed
• Any decrease in net working capital

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today!®Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to help anyone become a world-class financial analyst. Through financial modeling courses, training, and exercises, anyone in the world can become a great analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Projecting Balance Sheet ItemsProjecting Balance Sheet Line ItemsProjecting balance sheet line items involves analyzing working capital, PP&E, debt share capital and net income. This guide breaks down how to calculate
• Free Cash FlowFree Cash Flow (FCF)Free Cash Flow (FCF) measures a company’s ability to produce what investors care most about: cash that's available be distributed in a discretionary way.
• Cash-Rich Split-OffCash Rich Split OffA cash rich split off is a technique where a seller exchanges the company’s assets for stocks in a “cash rich” subsidiary of the company on a tax-free basis. The technique allows companies to dispose of non-core assets and emerge with cash without technically selling anything.
• Cash Earnings-per-ShareCash Earnings Per ShareCash earnings per share (cash EPS) is the operating cash flow generated by a company divided by the number of shares outstanding.  Cash earnings per share (Cash EPS) is different from traditional earnings per share (EPS), which takes the company’s net income and divides it by the number of shares outstanding.