Sound financial analysis involves more than just calculating and comparing ratios qualitative factors must be considered. Here are some questions suggested by the American Association of Individual Investors (AAII).

1.To what extent are the company's revenues tied to one key customer or to one key product? To what extent does the company rely on a single supplier? Reliance on single customers, products, or suppliers increases risk.

2.What percentage of the company's business is generated overseas? Companies with a large percentage of overseas business are exposed to risk of currency exchange volatility and political instability.

3.What are the probable actions of current competitors and the likelihood of additional new competitors?

4.Do the company's future prospects depend critically on the success of products currently in the pipeline or on existing products?

5.How does the legal and regulatory environment affect the company?