No. of Recommendations: 4


Great first step. You culled things that seemed obvious and noted discrepancies. Do you watch "House" discrepancies are interesting.

A couple ideas are to sort within the more narrow ratings bands and find those discrepancies, also you may want to separate callable from non-callable in different tables. The second hint might clear things up more than the first.

You may want to focus your read threws on basically 2 things. Cash flowing through the business and fixed costs. Where is the cash coming from? Is it coming from operations, sales of assets, selling debt or equity? If its coming mostly from operations than they are more likely to be self sustaining. Going through several years worth of statements and narratives will give you a sense of how they manage their cash. Some companies are real pros at using debt to keep the skids greased.

Fixed costs often takes a little mining. What does it take to service their debt? What does it cost to maintain facilities? What does it cost to maintain payroll? If R&D is an important part of the business model how much does that cost? What does it cost to service their dividend? Anything that keeps the lights on and the widgets coming off the line.

The lions share of your list are financials. Opps and investing lines get blurred because a financial's operations is investing. Often what we need to know about these is in the notes or in the narratives not easily extracted from the 3 sheets. Read the fine print on how they are valuing current assets. If they are shining on their assets they are not playing straight with us about the value of the toxic crud on their books. A real good reason to round file them and never look back.

The simple answers we are looking for is: Are they cash flow positive now and can we reasonably expect them to remain cash flow positive.

This is one place where household personal management translates well. Do they look like they are in a credit card death spiral? Are the living well within their means?


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