THE MOTLEY FOOL ASK THE FOOL

Reviewing and Crunching Numbers

Q: When reviewing the financial statements of a company I’d like to invest in, what are some numbers to look at?

– F.L., Worcester, Massachusetts A: Evaluating a company closely before investing in it – by assessing and crunching numbers from its main financial statements (the balance sheet, income statement and statement of cash flows) – is a smart move.

On the balance sheet, little or no debt is good. Also check that inventory levels and accounts receivable are growing no faster than sales. On the statement of cash flows, you’ll generally want to see that most of the company’s cash comes from ongoing operations – products or services sold – and not from, say, the issuance of debt or stock, or the sale of assets. Positive and growing free cash flow is promising, too.

Strong profit margins (gross, operating and net) can be a sign of a highquality company, reflecting proprietary brands or technology it can charge more for. Check previous years’ numbers as well, to see whether margins have been rising or falling – and perhaps compare them with those of competitors. You can learn how to calculate these and other informative measures by looking them up online. Our “Investing Basics” nook at Fool.com is also helpful.

Q: What are some good books on value investing?

– W.P., Victoria, Texas A: Try “The Little Book of Value Investing” by Christopher H. Browne (Wiley, $25); “Value Investing: From Graham to Buffett and Beyond” by Bruce C. Greenwald, Judd Kahn, et al. (Wiley, $35); or “The Intelligent Investor” by Benjamin Graham (Harper Business, $25).

FOOL’S SCHOOL

Don’t Get Burned by a Cold Call

If your phone rings and it’s someone you don’t know trying to get you to buy something or make an “investment,” you’ve received a cold call. Your best move is generally to hang up, but if you keep listening, heed the following cautions:

● If you’re told that you are among some “lucky few” to get this rare opportunity, be on high alert. Other red flags include “sure thing,” “can’t lose,” “guaranteed,” “is going to triple in value” and “must act now!”

● Any investment that sounds too good to be true probably is. If it were really such an amazing opportunity, no one would need to sell it by phone; those in the know would have already invested in it. Stocks that cold callers try to sell are often those that no one else wants – and there’s usually a reason no one wants them. This applies to initial public offerings (IPOS), too. Shares of IPOS that people are excited about tend to be hard to come by, not aggressively pushed over the phone.

● If you’re presented with “inside” tips, be wary, because it’s illegal to pass on, or act on, inside information. Try asking for detailed information to be sent to you in writing; if the caller is unwilling, steer clear.

Name That Company

I trace my roots back to a hospital set up in the Mojave Desert to care for workers building the Colorado River Aqueduct during the Great Depression. In 1957, one of my hospitals was the first to provide employer-sponsored health care. Today I’m both a leading health care provider and a notfor-profit health plan, serving about 12.5 million members. Half of my name refers to my clinical care and half to my health plan. With 39 hospitals and 730 medical offices in my system, I employ more than 200,000 people, recently including 23,597 physicians and 63,847 nurses. Who am I?