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Chapter 17. Growth Investing: The Process > Step 7: Financial Health

Step 7: Financial Health

Insuring 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 balance sheet on either MSN Money or Multex Investor.


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