Abstract The recent increasing use of the "funds" statement by decision makers and the inclusion of the statement in annual reports, and the efforts of the American Accounting Association to develop a body of basic accounting theory, have generated some hypotheses that need to be empirically tested. It is recognized that any business firm has usually as its objective to optimize profitability within the constraints of financial liquidity and its capital structure. For the purpose of the present study, "funds" are defined as change in net working capital flow. The choice of working capital flows stems from the assumption that a business enterprise is not interested in liquidation but is influenced by the operating cycle. Depreciation per se is not a funds item. However, it has an indirect effect on funds through income. The company should invest in treasury bills rather than government bonds. These two investment alternatives should be held at maturity. Therefore treasury bills will maximize funds while government bonds will minimize funds. The company should delay dividends to the end of the year or even later-if feasible because the liquidity position does not warrant payment of dividends as scheduled.
Abdellatif Khemakhem (Mon,) studied this question.