It is always important to see how much cash and short-term investments a company has. If a company is losing money, it is important to know if it has sufficient cash to sustain itself until reaching profitability. Large cash and marketable security positions may indicate upcoming financial difficulty if accompanied by ballooning payables and shrinking receivables, or they may indicate a cash flow rich business or a conservatively run company. If a company possesses a large amount of cash and marketable securities, it may also be an acquisition or takeover candidate by another company wishing to acquire the target company with the target's own cash and borrowing power.

It is generally not desirable to have receivables increasing faster than the revenues. Similarly, it is always useful to see that Accounts Payable are kept under control. A sign that a company may be in financial stress is a dramatic increase in accounts payable.

The next thing to review is the asset composition. Long-term investments may indicate assets unrelated to the company's basic business. Fixed assets could be either understated or overstated but usually relate to operations. They might include land and buildings, machinery and equipment, and other long term assets.

You want to look for a company which has greater current and long term assets compared to their liabilities. If current assets are less than current liabilities, the company could have an increased risk of insolvency. Long-term debt and capitalized leases are straightforward. They are the money the company has borrowed to buy plant and equipment or use in its business. Other long-term liabilities generally include items such as deferred taxes. Companies with significant other long-term liabilities should be looked into more closely.