Banca

Sources and Uses of Funds



Use Excel to get a clearer picture of how changes in your Balance
Sheet affect your cash flow.


by Charley Kyd
August, 2004
For most businesses, cash flow ismore important than profits and losses.
The reason is clear. A profitable company with negative cash flows may not survive. But a money-losing company with positive cash flows can survive for as longas the cash lasts.

Reporting Cash Flows in Excel

We all know what cash is. But what's cash flow?
One common short-hand definition of cash flow is net profit plus depreciation. This definitionisn't worth much, however. If your company is breaking even, your customers don't pay, your inventory has doubled, and all your vendors have put you on COD, this formula would say that your cash flowis positive.
Public accountants define cash flow using a Statement of Cash Flows. That report reorganizes the Balance Sheet by degree of liquidity to show how the change in Cash can be explained bychanges in the other items.
For management reporting, however, it's often useful to show cash flows using the traditional method of Sources and Uses of Funds, as shown in this Excel report.
Thisstatement, shown here, uses a balance-sheet format to present its cash flow information.
Unlike most balance sheets, this report shows balances at two different dates, and then categorizes the change ineach item as a source or a use of funds.
Too often, non-financial managers ignore the balance sheet, with a shrug and the thought, "So what?". Instead, they concentrate on the income statement, whichprovides a more obvious record of performance.
However, when a balance sheet includes a section of Sources and Uses of Funds, it answers the "so what?" question. It shows whether Cash has increasedor decreased, and shows what brought that change.
Therefore, the primary advantage of this statement is that it gives managers important information about how their decisions about assets and...