Investment Tutorial: 
: Continued
How to Read Flow of Funds Accounts
Selected Sector Tables
We have selected the following sector tables for color-coding on this site, grouped into seven categories or types of 'players':
Individual Investors
Managers of Nonfinancial Business
Government Officials
International Players
Bankers and Brokers
Insurance Executives
Fund Managers
F.119 State and Local Government Employee Retirement Funds
F.120 Federal Government Retirement Funds
F.121 Money Market Mutual Funds
These selected sectors present a comprehensive picture of the major players in the U.S. capital market.
Making Flow Tables Easy to Read
As published by the Federal Reserve, flow of funds accounts are difficult to read and can even become mind-numbing when examined for too long at one sitting:
- subtotals do not stand out;
- reverse flows are not evident; and
- there is no indication of price trends.
Obscure tables may be acceptable to economists, who thrive on murky concepts and mysterious mathematics, but for pragmatic investors and portfolio managers, time is of the essence.
To make interpretation of national flow of funds accounts easier for capital flow analysts, we have developed a way to color-code the data.
In order to process the color-coding of over ten thousand data points in a timely fashion, soon after the official data is published, we developed macros for Excel spreadsheets that handled the process automatically.
This system is not patented and you may adapt it for your own use. After the first year, we discontinued updating these color-coded tables, since their purpose was primarily as an educational resource. However, you may use the system for commercial purposes, without royalties, if you so wish.
As far as we know, color-coded flow of funds tables had been published only on this site as of September 2005 and the system is in the public domain.
Should you need assistance in automating the color-coding process, please contact us and we will be glad to share our technical know-how.
- With color-coding, an analyst can quickly spot the main capital flows.
- Motivated buyers or sellers stand out from the crowd.
- Information on relevant historical price trends is immediately available.
- Secondary information (such as sub-totals) can be separated from more important data.
On this site, there are thirty flow of funds tables in color-coded format.
These tables are accessed through the 'players' and 'instruments' tabs on the top navigation bar.
[In Lesson 21, you will find a detailed, step-by-step guide to using the flow tables published on this site.]
Color-Coding of Negative Numbers
The subset of thirty flow of fund accounts tables shown on this site contains about ten thousand data points.
The tables in Federal Reserve Release Z.1 are published in black and white, making it hard to distinguish sub-totals from basic data and creating confusion in the interpretation of negative numbers.
To distinguish sources and uses of funds in a sector table, we color the background blue and yellow.
- Yellow indicates a source of funds.
- A blue background refers to a use of funds.
The inset on the right show that even when the row titles are hidden, we can tell that this is a sector table because the background is blue and yellow.
We also know that the data against the blue background is a use of funds, while data against a yellow background is a source of funds.
Depending on whether a table refers to an instrument or a sector, and the position of data in the table, negative numbers have four possible meanings:
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Sector tables (investment section): A negative number indicates a "source of funds".
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Sector tables (liabilities section): A negative number indicates a "use of funds".
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Instrument tables (issuers section): A negative number indicates a "buyer of securities".
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Instrument tables (purchasers section): A negative number indicates a "seller of securities".
There are also four possibilities for positive data points.
To make it easy to interpret tables, highlighting sources and uses of funds in sector tables and buyers and sellers of securities in instrument tables, we color-code the data as follows:
- A blue background indicates a "use of funds" in a sector table.
- A yellow background indicates a "source of funds" in a sector table.
- A red background indicates a "net sale of securities" in an instrument table.
- A green background indicates a "net purchase of securities" in an instrument table.
Whereas sector tables are colored blue and yellow to indicate sources and uses of funds, instrument tables are colored red and green to indicate issuers and purchasers of financial assets.
Because of this coding, we know that the inset on the right is from an instrument table, since the background is red and green.
Sales data is shown in red, while net purchases are shown in green.
Before proceeding, check your progress:
Self-Test
In Capital Flow Analysis, it is necessary to review:
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Flow tables are color-coded:
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A yellow background on a flow table indicates:
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