Fund (Working Capital) in an Organisation is like water in a reservoir. The Fund is analogous to water and the reservoir to the organisation.
There is a change whenever there is a flow
There would be a change in fund (working capital) whenever there is a flow (in/out) of fund.
- An inflow would result in an increase and
- An outflow would result in a decrease.
There is a flow whenever there is a change
A change in fund (working capital) in the organisation is an indication of flow of fund.
- An increase would indicate an inflow and
- A decrease would indicate an outflow.
Hidden/Masked flows
When there is an inflow followed by an outflow of the same magnitude, there may not be a change in fund (working capital). An inflow would result in an increase in fund which would be set off by an outflow resulting in a decrease. Since the magnitude is the same, after the two transactions, the fund seems to be unchanged.
In such situations, to notice the change, we will have to break down the transactions into two instead of viewing them in total.
