Otherwise, you must dig deeper into the prospectus. Look to see if revenues are increasing. And if net income isn't growing or is nonexistent, that's a worry. Also, check cash flow from operations. Because of accounting rules, companies can post higher earnings yet see operations drain the company of cash.
Cash flow is net earnings plus all noncash expenses, such as depreciation and amortization.
Conversely, year after year of red ink on the bottom line may divert your attention from steady cash-generation by the business. But because it has had many noncash expenses such as depreciation, it has always generated cash enough to maintain the business. It's a little drier, but it does absolutely discuss the actual trends and what's causing them,'' she says. Friendly might post an actual profit if, after raising cash in the IPO to retire much of its debt, it has a lower ongoing interest bill. Here you'll also find a table, ''Results of operations,'' that breaks the income statement down as a percentage of total revenues.