Hey, Fellow Credit Experts! 🚀

You know the toughest part of assessing a credit proposal and writing those proposal notes? Yup, you guessed it—analyzing the financials! 🤯 It can be super confusing, right? All those numbers our Excel sheets throw at us when we feed in three years’ worth of balance sheet figures… there’s no one-size-fits-all answer because each balance sheet is different.

But don’t sweat it! 💡 Fund Flow Analysis is here to save the day. It breaks down the balance sheet into digestible slices, showing exactly where the money came from and where it went. Plus, it even provides solutions for us!

Now, this technique may not be part of your formal assessment process in many banks. However, you can use it for self-assessment to streamline your analysis and gain better insights.

How to Use Fund Flow Analysis 📊💡

Now, go to your balance sheet and fit every aspect into the slices (Get the guidance from image above). Remember, it’s a fund ‘flow’ analysis, so we have to identify the flow of funds from one year to another. For example:

• If share capital increases from ₹100 Lakh to ₹200 Lakh, it is a source of funds and will be categorized in the ‘Long Term Sources’ slice. The amount to be written in the slice is ‘₹100 Lakh,’ which is an addition of share capital.

However, take special care of these two balance sheet items:

1. 🏢 Fixed Assets – Consider Depreciation Aspect
   

   1. For instance, as on 31.03.2023, the fixed asset block is ₹5,00,000 & on 31.03.2024, it remains ₹5,00,000. This may give the impression that there have been no long-term sources or uses of funds on this account during the year. But this is not correct. If depreciation charged during the year is ₹60,000, it means that additional fixed assets of the same amount have been purchased during the year. Got it? Similarly, the sale of assets shall also be considered a source.

• 📉 Net Worth – Consider Dividend or Capital Withdrawal
  

  • While comparing the figures of two balance sheets, take into account outgo on account of dividends or capital withdrawal. We may miss it as the profit is added to Net Worth. For example, as on 31.03.2023, Net Worth is ₹10,00,000 & on 31.03.2024, it remains ₹10,00,000. This may give the impression that there have been no long-term sources or uses of funds on this account during the year. But this is not correct. If the profit added during the year is ₹1,00,000, it means there is a withdrawal of the same amount during the year.

Your Turn! 📝✨

Now, it’s your turn to do it practically. Feed any balance sheet data and let us know your observations.

Well, If you read carefully, ‘there seems mistake in the image’, can you identify it. Let us know in comments…Let us learn together.