Episode 6 : The Vanishing Craft of Fund Flow Analysis — And Why We Must Bring It Back
- Vivek Krishnan
- Aug 5
- 2 min read
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.
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