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OK besides looking for cash rich companies make sure you'll only invest your money in companies with

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a low level of debt you're unlikely to find any well-established business that doesn't carry some level

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of financial liability.

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In fact a little debt can be a good thing when it helps to provide the funding for business growth and

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expansion.

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Since this type of activity tends to raise the overall value of a company.

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But that doesn't make it acceptable to invest in a business that's carrying a large debt load since

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it's very easy for a company to get into trouble once it overextends itself financially and is no longer

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able to service or repay its loans.

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That is to say having too much debt can lead to many financial troubles.

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So as a value investor you should be careful when picking a company to invest in when looking at a company's

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financial statement you'll find that there are two types of debt short term debts and long term debts

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for evaluating a company's short term debts.

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You can use liquidity ratios and for evaluating the long term debts you can use solvency ratios to find

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out if a company's debt level is high or low.

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You can compare its debt ratios with that of its rivals and the industry average.

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And finally you should also evaluate the company's ability to repay its short term and long term debts

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if it can generate enough cash flow to pay its bills on time.

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There may not be any problem however if the company fails to pay its bills on time.

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It's going to have a problematic relationship with its suppliers and lenders and that will affect the

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business in the long run.

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Remember that when you buy shares in any company you are effectively lending that company your own hard

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earned money.

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So make sure that youll only seek out businesses with low debt loads and a reliable track record for

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repaying their debts.

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So that's Principle Number Three.

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See you in the next video.