Abstract
Many common financial measures do not indicate the likelihood that a company can meet its obligations over a given period of time. But a relatively new measure, Emery's Lambda, can indicate whether a company will lose its liquidity over a specific time horizon. The mea- sure is a calculation based on a company's initial liquid reserve, plus its anticipated cash flow, divided by the uncertainty about that cash flow. Essentially a coverage ratio, Emery's Lambda can be used to assess how effectively a company is using its working capital. The liquidity prospects of seven companies are analyzed in this article-and Lambda correctly indicated those that were in questionable liquidity positions.
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