Beyond Ratios Series
In today’s risk committees and appraisal notes, a dangerous trend is setting in — ratios rule, narratives are ignored.
🧾 Credit officers are asked:
“Is the Current Ratio above 1.33?”“Has the DSCR touched 1.5?”
But here's the uncomfortable truth:
These numbers are surface signals. They don’t tell us what actually moved.
Fund Flow Analysis — once a mainstay of any decent appraisal — is now relegated to tick-box treatment, if at all.
It’s not just a missed opportunity. It’s a missed red flag.
📉 Why Has Fund Flow Disappeared?
It requires time and interpretation.
It’s not spreadsheet-friendly.
Most credit systems don’t demand it.
Fund Flow Analysis
In the age of automated scorecards, fund flow is seen as slow and manual — not sexy enough for dashboards.
But isn’t that precisely the problem?
We're making fast decisions with half the story.
🧠 What Does Fund Flow Analysis Reveal That Ratios Don’t?
✅ Cash conversion of EBITDA ✅ Hidden working capital pressures
✅ Artificial surpluses masked by debt✅ Disconnect between profit and liquidity
It’s the forensic lens of credit — the narrative between the numbers.
🔍 A Case in Point: SE Forge Limited
Public data. Real balance sheet. Arbitrary selection. Educational intent only.
SE Forge, an auto ancillary manufacturer, reported a net profit of ₹14.36 Cr in FY 2023.Not bad, right?
But here’s what a fund flow analysis tells us:
Component | ₹ Cr |
Net Profit | 14.36 |
Add: Depreciation & Non-Cash Items | 95.55 |
👉 Operating Surplus | 109.91 |
Less: Increase in Working Capital | (174.48) |
Less: Capex + Investments | (61.11) |
👉 Total Application of Funds | 235.59 |
👉 Fund Deficit | -125.68 |
How was this bridged?
External funding and liabilities.
The gap is bigger than the profit.Yet, a pure ratio-based appraisal may not flag any alarm.
⚠️ What’s the Message Here?
Banks today face the highest-ever credit losses in MSMEs and BBB-rated portfolios. And yet, one of the oldest tools of scrutiny — fund flow — is missing.
Is this intentional neglect? Or institutional amnesia?
RBI has nudged toward cash flow lending.But fund flow isn’t even on the checklist.
🎯 Let’s Reimagine Fund Flow — Don’t Ditch It, Digitize It
💡 It’s not about returning to paperwork. It’s about bringing fund flow into the digital age.
Here’s how:
What’s Needed | Modern Solution |
Time-consuming worksheet prep | Auto-import from AA/GST/Bank feeds |
Manual ledger interpretation | AI-driven movement classification |
Officer-led judgment | Rule-based alerts with override commentary |
A revived fund flow system can act as:
The lie detector for inflated ratios
The pressure gauge for working capital misuse
The alarm bell for liquidity mismatches
🧭 Final Thought
In a world chasing “credit velocity,” let’s not forget:📌 Solvency is a snapshot; liquidity is a journey.
Fund flow is the roadmap.
And it’s high time we bring it back — not out of nostalgia, but necessity.
Archive note
This essay was restored from Vivek Krishnan’s Wix journal. Its original wording and available visuals have been preserved.
This page is now the permanent canonical edition within Vivek Perspective.
