The Information Content of the Funds Statement Ratios.

This study examines whether the funds statement which uses the working capital concept of funds contains incremental information beyond that supplied by the conventional statements. In 1971, The Accounting Principles Board (APB) required the disclosure of a Statement of Changes in Financial Position along with the balance sheet and income statement. this statement, which is better known as The Funds Statement, soon became a target of criticism. It was often argued that the statement, which most commonly used a working capital definition for funds, failed to indicate a firm's ability to maintain its liquidity and ignored short-term financing and investment decisions. In November 1987, the FASB required the disclosure of a statement of cash flows which replaces the statement of changes in financial position. The evaluation of incremental information content is based on the association of financial ratios derived from the SCFP with market rates of return of shares. While accounting research has examined the information content of earnings, components of earnings, components of the balance sheet, specific footnote disclosures, and so forth, there has been very little research into the information content of data from the Statement of Changes in Financial Position.