Fund Flow and Cash Flow Statement

The statement which shows various sources of funds and their uses is called fund
flow statement and its different from revenue statement of balance sheet. The FFS
can be based on two concepts, those are as follows.

i. Change in Working Capital concept
It is derived from the need for availability of liquidity and need for the liquid
funds. That is current assets and current liability.

ii. Change in Financial Position
A promoter/banker concerned with funds not only for the working capital but for
the entire funding needs. Their concern is to adding fixed asset/repayment of long
term loans as per their pre-fixed repayment schedule. Movement of all the funds in
the business has to be considered.
The fund flow statement should be carefully examined and reasonableness of the
various assumptions underlying the project should be ascertained. On the long term
side, it should be ensure that fund outflow for essential expenditure on fixed asset,
repayment obligation, taxes and dividends are fully provided for that the cash
generation will be adequate. On the short term side, the projected increase in
current liabilities/bank borrowings should be matched by projected increase in the
inventories/receivables.




Cash flow estimates
It is prepared to ensure that the unit will have necessary cash with it and it will not
face liquidity problem. It is necessary for the construction period also to ensure
availability of cash according to the requirement of the project.

Projected Balance Sheet
In the case of cost of production and profitability estimates and fund flow
projection, the projected balance sheet should be furnished by the company for the
entire period. While appraising the following points will be checked by the bank.
The cost of the project, means of financing, the profitability estimates and the fund
flow projection.

Others (Brief Comment)

i. Quality of Management
Appraiser will briefly comment on the companys management setup, the
composition of the board and the chief executive in-charge of the day-to-day
operations.

ii. Credit Rating
The bank will do the overall assessment of the company and rate the company
according to the assessment.


Disbursement:
Execution of loan agreement and other necessary legal documents is not sufficient
for disbursing the amount. Branch will ensure that the amount disbursed is utilised
for the purpose for which it has been sanctioned.

Supervision and Follow-up
Projected supervision and follow-up of assisted project during and after
implementation is indeed a important exercise to performed periodically by bank.
It not only safeguard the interest of the bank but also to ensure optimum returns on
the total investment in project. Even a project well accepted at the appraisal stage
may go bad due to lack of adequate care. Therefore supervision and control during
implementation is necessary during and after project implementation it will be
done by the bank by following methods.

Scrutiny of progress chart
Analysis of annual financial results
Visit/Inspection, regulatory control
Discussion with management