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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Step 7: Financial Health

Ensuring that your candidate is not a bankruptcy candidate is a critical factor in your analysis. Different financial health tests are required depending on whether your candidate is a low- or high-debt firm. Many growth candidates are younger companies that haven’t been in business long enough to acquire much debt, and thus qualify for the quick Busted Cash Burner test. High-debt firms require the Detailed Fiscal Fitness Exam.

Use the total liabilities/equity ratio (TL/E) to determine the appropriate financial test. The TL/E ratio results from dividing a firm’s total liabilities by shareholders equity. The ratio is not calculated on any financial site, but both figures can be found near the bottom of the most recent ...

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