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Sources and Uses

When it comes to finance, Sources and Uses (also referred to as “S&U”) is a common concept in finance that refers to where money is coming from (sources) and what it is used for (the “uses”).

This concept is critical for financial planning, budgeting, and forecasting. In this article, we’ll explain what sources and uses are, what typically falls into each category, and why they are important.

What Are Sources and Uses?

Sources and uses is a way of analyzing the inflows and outflows of money for a particular project, company, or investment. Think about it as a table, as it’s commonly presented in business plan and financial models (on the left side are sources and on the right the uses).

What is included in Sources?

Sources of funds refer to where the money is coming from to finance a particular project or investment. These sources could include:

EquityOwnership in a company that represents a portion of the total value of the company
DebtMoney borrowed from a lender that must be repaid with interest
GrantsMoney given by a government or other organization for a specific purpose
DonationsMoney given by individuals or organizations for a specific purpose
Cash ReservesMoney set aside by a company for future investments or emergencies
Retained EarningsProfits from previous years that a company has kept for reinvestment

It’s worth noting that sources can also come from operations, such as revenue generated from sales.

What is included in Uses?

Uses of funds refer to where the money is going or what it’s being used for. These uses could include:

Capital ExpendituresInvestments in long-term assets like property, plant, and equipment
Research and DevelopmentSpending on activities that aim to develop new products or services
Marketing and AdvertisingCosts associated with promoting a product or service
Working CapitalFunds used to finance day-to-day operations like payroll, inventory, and accounts receivable
Debt RepaymentMoney used to pay back loans and interest
DividendsDistributions of a company’s profits to its shareholders
Stock BuybacksRepurchasing of a company’s own shares in the market
AcquisitionsPurchases of other companies or assets

Example of Sources and Uses

To illustrate how sources and uses work in practice, let’s consider an example of a small business that wants to expand its operations by purchasing a new building.

The business plans to finance the purchase through a combination of debt and equity. Here’s a breakdown of how the sources and uses for the project could look like:

Total Sources$700,000
Purchase of Building$650,000
Legal Fees$20,000
Miscellaneous Expenses$30,000
Total Uses$700,000