INVESTOR RESPONSE TO CHANGES IN CORPORATE LIQUIDITY

Abstract

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.

Citation

Huth, W.L. (1989), "INVESTOR RESPONSE TO CHANGES IN CORPORATE LIQUIDITY", Managerial Finance, Vol. 15 No. 6, pp. 33-36. https://doi.org/10.1108/eb013632