Few would argue that evaluating a firm’s financial health should be done for every investment candidate. You’d think that market analysts would take that step before advising investors to buy a stock, but since they don’t, you have to do it on your own.
You can simplify the task by sticking with low-debt firms showing positive cash flow and positive working capital. You can get a quick read on high-debt firm’s financial health by checking their bond ratings and their bond risk premiums, but the Detailed Fiscal Fitness Exam is the best way to determine a potential financial basket case.
Fiscal Fitness Exam Worksheet