© 2000 John Petroff
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© 2000 John Petroff |
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2)- Sources and Uses of Funds Statement
Prior to the adoption of statement of cash flows just explained in the previous subsection, firms used to prepare a Sources and Uses of Funds Statement, and some firms still do. The net change of every balance sheet item between two consecutive years is classified as either a source or a use of funds:
This statement shows how the change in cash or working capital was achieved from changes in various items of the balance sheet as in the previous statement. But, it does that in a less informative manner because there is no distinction of purpose. Another problem of both presentations is that neither explains whether any fund flow was the result of an unforeseeable event or a firm's deliberate strategy. For instance, in Table T-8.10, the proceeds from sales of assets in 1989 by Texaco amounted to close to $5 billions, and was twice as large as the net income for that year, but the statement does not give a clue as to the composition or the reason for such large transaction(s). Moreover, this sale of fixed assets is unlikely to repeat itself in the future. As a result, the statement is not very helpful in determining what fund flows will take place in the coming year.
See review questions Q-8J2.1 and Q-8J2.2.
See research assignment R-8J2.1.
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