The liquidity component from financial analysis has been found to be an important predictor of a firm's financial well being. Altman's credit worthiness and financial viability system uses, among six other financial measures, the current ratio as a liquidity discriminant variable. The Altman system itself has had considerable success in the prediction of corporate bankruptcy. Altman reported that the system correctly predicted bankruptcy 93 of the time using financial statements one period prior to failure and 87 with financial statements two periods prior. The Value Line Investment Survey also contains a measure of financial strength that incorporates a liquidity measure.
Managerial Finance – Emerald Publishing
Published: Jun 1, 1989
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