When we invest directly in companies, other than looking at valuations, we also need to determine the financial health of the company. Even cheap companies may be bad investments if they are facing financial problems. However, many companies will find ways to sugarcoat their financial statements by a common practice known as earnings manipulation. So investors may be falsely led to believe the company is doing well until it is too late. Enron is a very famous case in the US of one of the largest oil & gas firm in the US which went bankrupt, affecting tons of investors and their employees as well. So how do we figure out which firms have financial issues? We will discuss 2 primary methods you can use to study financial statements. 1. Follow The Cash Follow the cash is basically to track the cash flow instead of focusing on earnings. ......