There are five primary areas on any financial statement that can make or break it. Your initial job is to analyze the information in front of you within 10 minutes and know if you have a probability for a valid deal. There are differences in how various industries are viewed and the specific thresholds required. Our intent here is to look for the very basic information. If the net worth of a company is positive then the rest of the story can be pretty promising.
Net worth is the result of total assets less total liabilities.
Not enough assets or too many liabilities and the company is upside down. A positive net worth does not guarantee a healthy company, but it is a step in the right direction. If the net income is sufficient to service the new debt request, you are on your way. In most cases, there are items that can be added back in, such as depreciation and amortization as well as a few others. But when it comes down to it, a positive income is rarely a bad sign.