The purpose of this analysis is to go beyond an behind the information contained in the financial statements. Income statement tells the quantum or profit earned or loss suffered for a particular accounting year. Balance sheet gives the assets and liabilities position as on a particular date. But im an accounting year a number of financial transactions take a place which have a bearing on the performence of the concdrn but which are not revealed by the financial statements. For E.g: A concern collect finance throug various sources and uses them for various purposes. But these details couid not be known from the financila traditional statements.
Funds flow analysis gives an opening in this respect. All the more, funds flow analysis gives an opening in this respect. If there is an increase on working capital what resulted in the increase and if there is a decrease in working capital what caused the decreases, etc. will be made available through funds flow analysis.
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