As in the case of source of funds, it is convenient to classify the applications of funds according to their effects on non-current items:

1.    Purchase of non-current assets: When non-current assets such as plant and equipment, buildings or long-term investments are purchased, working capital is reduced. Consequently such purchases are uses of funds.

2.    Redemption or repayment of non-current liabilities: Payment of long-term debts such as debentures, bonds or mortgage loans for cash and other current assets reduce the working capital and therefore is a use of funds.

3.    Capital reductions or redemptions: The withdrawals of cash or other current assets by the proprietor(s) or the redemption of preference share capital for cash reduce the working capital and are uses of funds.

4.    Payments of cash dividends: The declaration of dividends to be paid in cash or other current assets reduces the working capital ad is a use of funds. Note that it is the declaration that uses funds. The details are discussed later under the heading proposed dividends.

5.    Purchase of intangible assets like goodwill, patents, trade marks, etc, for cash and other current assets is a use of funds.

6.    Meeting any operating losses.

7.    Meeting costs of unusual payments, e.g., costs in a legal action.

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