This article investigates the use of the balance sheet and funds statement to measure the financial liquidity of a firm. In recent years financial analysts have tended to focus attention on the income statement and to disregard the statement of financial position. Accounting conventions have implicitly encouraged this point of view by producing a balance sheet which is a residual of accounting procedures rather than a meaningful statement of financial position which interested parties can use for decision-making. In turn, distrust of accounting conventions relative to measuring expenses such as depreciation and pension costs has led to the use of the funds statement in conjunction with the income statement. However, the exact use of the funds statement has not been well defined. It should focus on the significance of the funds statement and how can it be used in financial analysis. It is the author's contention that the financial position of a firm is relevant in making decisions involving an investment in a firm and should be systematically incorporated into any analysis of financial affairs.