The funds flow statement examines the inflows and outflows of funds within a specific period, offering insights into a company's financial standing. This analysis covers the components, significance, and limitations of the funds flow statement.

To prepare this statement, one needs to establish a Schedule of Changes in Working Capital, factoring in variations in current assets and liabilities to estimate the net increase or decrease in working capital. Additionally, an Adjusted P&L Account is needed to identify funds generated through operations.

The statement is divided into two core sections: Sources of Funds and Application of Funds. Sources include the issuance of shares, debentures, long-term loans, sale of fixed assets, and funds from operations. Applications cover the purchase of fixed assets and investments, redemption of debentures, loan repayments, dividend and tax payments, and increases in working capital.

The funds flow statement is crucial for analyzing financial positions, aiding in decision-making and management control. It details changes in assets and liabilities, which is valuable for assessing a company's creditworthiness. However, its focus on funds movement underscores the need for a separate cash flow statement to evaluate cash position more precisely.

In the context of mutual fund investments, the funds flow statement is instrumental in assessing the financial health, investor sentiment, and market demand for underlying assets, providing insights into the net inflow and outflow of funds, investor sentiments, and asset demand.

A clear distinction exists between the cash flow statement and the fund flow statement. The former focuses on cash movements and their impact on working capital, presenting opening and closing cash balances. In contrast, the funds flow statement addresses broader working capital inflows and outflows, providing a comprehensive view of long-term financial health.