A source and application of funds statement (SAFS), also known as a funds flow statement, is a financial statement that summarizes the sources of a company’s funds and how those funds were used during a specific period of time. It is a useful tool for financial analysis and can be used to identify trends in a company’s financial performance.
The SAFS is prepared using the indirect method, which starts with the net income for the period and then adds back non-cash expenses and subtracts non-cash income to arrive at the cash flow from operating activities. The cash flow from investing activities is then calculated by adding back proceeds from the sale of assets and subtracting purchases of assets. Finally, the cash flow from financing activities is calculated by adding back proceeds from the issuance of debt and equity and subtracting payments on debt and dividends.
Sources of Funds
The sources of funds for a company can include operating activities, investing activities, and financing activities. Operating activities are the company’s core business activities, such as sales, production, and marketing. Investing activities are the company’s investments in long-term assets, such as property, plant, and equipment. Financing activities are the company’s activities related to raising capital, such as issuing debt or equity.
The most common sources of funds for companies are operating activities. However, companies may also need to raise capital through investing or financing activities to fund growth or other initiatives. The specific sources of funds that a company uses will vary depending on its industry, stage of development, and financial needs.
Applications of Funds
The applications of funds for a company can include operating activities, investing activities, and financing activities. Operating activities are the company’s core business activities, such as sales, production, and marketing. Investing activities are the company’s investments in long-term assets, such as property, plant, and equipment. Financing activities are the company’s activities related to raising capital, such as issuing debt or equity.
The most common applications of funds for companies are operating activities. However, companies may also need to use funds for investing or financing activities to fund growth or other initiatives. The specific applications of funds that a company uses will vary depending on its industry, stage of development, and financial needs.
Conclusion
The source and application of funds statement (SAFS) is a financial statement that summarizes the sources of a company’s funds and how those funds were used during a specific period of time. It is a useful tool for financial analysis and can be used to identify trends in a company’s financial performance.
The SAFS is prepared using the indirect method, which starts with the net income for the period and then adds back non-cash expenses and subtracts non-cash income to arrive at the cash flow from operating activities. The cash flow from investing activities is then calculated by adding back proceeds from the sale of assets and subtracting purchases of assets. Finally, the cash flow from financing activities is calculated by adding back proceeds from the issuance of debt and equity and subtracting payments on debt and dividends.
