If you can read a company's financial statements, you can find red flags and you can find them fast.

If you can read a company's financial statements, you can find red flags and you can find them fast. Here's what I would call the 10 minute method and you would do it like this. Step one is to start with the cash flow statement, not the P&L, not the income statement. Why? Because revenue can be creative, but you know that cash is real. So look for consistent negative operating cash flow, that will be your number one warning sign. Next, check the debt levels on the balance sheet. If debt is growing faster than revenue, the number one question is why. Then, glance at gross margins in the income statement. Are they shrinking year over year? That could be pricing pressure or rising cost. Finally, look for one off items or adjusted numbers in the earnings report. Way too many adjustments means they might be hiding recurring problems that just keep happening. This is something that comes up a lot more often than you would think with companies that are way bigger than they should be to be making these mistakes. This works whether you're evaluating a client, a competitor, even your own employer, because healthy numbers tell a story and so do unhealthy ones. If you like this content and you'd like to see more, hit the follow button and click the link in my bio.