Blog · Finance metrics and formulas · Finance and FP&A teams
Funds flow analysis explains how a company's working capital changed between two balance sheets. Build a sources-and-uses schedule, reconcile it to current assets less current liabilities, and distinguish the result from cash flow.
Funds flow analysis explains how sources and uses changed a company's net working capital between two balance-sheet dates. Define funds as current assets minus current liabilities, build the movements, and prove that net sources equal the change. A larger working-capital balance can include more unpaid invoices or inventory, so it does not by itself establish stronger cash availability.
Net working capital = Current assets - Current liabilities
Change in working capital = Closing working capital - Opening working capital
Net sources of funds = Sources - Uses other than the working-capital increase
The SEC's financial-statement guide gives the current-assets-less-current-liabilities definition. Here it includes cash and current debt; an operating measure that excludes them would produce a different answer. Use the same classification at both dates and keep the balance-sheet totals intact. The broader working capital guide covers the balance itself.
This is an internal management analysis. FASB's historical Statement 95 describes the ambiguity in older definitions of funds and the replacement of the statement of changes in financial position with a statement of cash flows. Do not present this working-capital schedule as a required US financial statement. For the cash-based method, use the existing cash flow analysis example.
Export opening and closing balance sheets for the same legal entities and currency. Keep account code, account name, current/noncurrent classification and both balances. Add the income statement, fixed-asset roll-forward, debt schedule and equity movements covering the period between those dates.
Confirm that both balance sheets balance before classifying a source. Ask the controller to identify acquisitions, foreign-currency effects, debt reclassifications and noncash purchases. Two balance differences cannot establish whether equipment was bought, depreciated or sold, or whether debt was borrowed and repaid during the same period.
The example below is an illustrative Ohio distributor for the year ended December 31, 2025. It has no disposals, acquisitions, foreign-currency effects, new equity, debt reclassifications or other noncash movements beyond depreciation. Every amount is USD; dollar calculations are exact.
Put this table in A1:D15. Column D is closing less opening, so D2 is =C2-B2, filled down where applicable.
| Account | Opening (USD) | Closing (USD) | Change (USD) |
|---|---|---|---|
| Cash | 100,000 | 130,000 | 30,000 |
| Trade receivables | 220,000 | 260,000 | 40,000 |
| Inventory | 180,000 | 210,000 | 30,000 |
| Prepaid expenses | 20,000 | 20,000 | 0 |
| Current assets | 520,000 | 620,000 | 100,000 |
| Net property and equipment | 480,000 | 540,000 | 60,000 |
| Total assets | 1,000,000 | 1,160,000 | 160,000 |
| Accounts payable | 170,000 | 190,000 | 20,000 |
| Operating accruals | 50,000 | 60,000 | 10,000 |
| Current debt | 30,000 | 30,000 | 0 |
| Current liabilities | 250,000 | 280,000 | 30,000 |
| Long-term debt | 300,000 | 350,000 | 50,000 |
| Equity | 450,000 | 530,000 | 80,000 |
| Total liabilities and equity | 1,000,000 | 1,160,000 | 160,000 |
With the header in row 1, current assets are row 6 and current liabilities row 12. Calculate opening, closing and movement in separate cells:
=B6-B12
=C6-C12
=(C6-C12)-(B6-B12)
Opening working capital is $270,000; closing is $340,000. The increase is $70,000. Independently, the current-asset increase of $100,000 less the current-liability increase of $30,000 gives the same $70,000. This is the amount the sources-and-uses schedule must explain.
Supporting schedules establish these period movements. Positive amounts in the last column are sources; negative amounts are uses. They are transaction or expense inputs, rather than assumptions inferred from net balances.
| Supporting item | Evidence | Signed amount (USD) |
|---|---|---|
| Net income | Income statement | 110,000 |
| Depreciation expense | Fixed-asset schedule | 40,000 |
| New long-term borrowing | Debt schedule; no repayments | 50,000 |
| Equipment purchases | Fixed-asset additions; all paid | -100,000 |
| Dividends | Equity schedule; all paid | -30,000 |
| Sources less uses | 70,000 |
In this deliberately simple case, funds from operations are net income plus depreciation: $150,000. Depreciation reduced income without reducing working capital, so add it back. Other noncurrent or nonoperating income-statement items would require their own reviewed adjustments.
Put the supporting table in F1:H7. The bridge is:
=SUM(H2:H4)
=-SUM(H5:H6)
=SUM(H2:H6)
=SUM(H2:H6)-((C6-C12)-(B6-B12))
Sources are $200,000, uses are $130,000, and the final reconciliation cell is zero. Presenting the $70,000 working-capital increase as an additional balancing use is also possible, but do not subtract it twice when explaining the bridge.
The fixed-asset check is $480,000 opening net equipment plus $100,000 purchases less $40,000 depreciation equals $540,000 closing. Equity is $450,000 plus $110,000 net income less $30,000 dividends equals $530,000. Long-term debt is $300,000 plus $50,000 borrowing equals $350,000.
Those checks establish that the bridge fits the balance sheets and supporting schedules. They do not turn funds from operations into operating cash flow: receivables, inventory and payables still affect cash separately. The distinction is worked further in cash flow versus fund flow.
The controller owns classifications and reconciliations. FP&A uses the result to explain how retained earnings and financing supported equipment and current-account growth. If the next question concerns future payment capacity, move to cash flow scenario analysis with explicit collection and payment assumptions.
Bring your two balance sheets and supporting account schedules as files or a Google Sheet. Covirage maps the columns, and its tools compute and check the working-capital movements and reconciliation; the external AI model explains the result with every figure traced to its rows. Create a free Covirage account, then set up your business and bring a sample of your own data.
See FP&A reporting for the finance reporting context.
Define funds before building the schedule. This method uses net working capital, including cash and current debt: total current assets minus total current liabilities. Other reports use funds to mean cash, so the title alone does not establish what a schedule measures.
In a traditional sources-and-uses statement, an increase in working capital is the use that balances sources against other uses. In the reconciliation shown here, sources less other uses equals that increase. Label the presentation so the movement is counted only once.
They establish account movements but cannot reveal every underlying transaction. Obtain the income statement and asset, debt and equity schedules. Asset purchases and disposals can offset, while depreciation, reclassifications and other noncash entries can move balances without the cash transactions you might assume.
No. Working capital includes receivables, inventory and other current accounts as well as cash. A company can have more working capital because unpaid customer invoices grew. Inspect the current-account movements and a separate cash reconciliation before making a payment-capacity judgment.