Three questions every investor must ask

Every sensible investor should dig out a firm's cash-flow statement before putting money into a business. This will enable you to answer three crucial questions. Tim Bennett explains.

Three numbers from insolvency specialist Begbies Traynor capture the scale of our current economic problems. In an average year there are 12,000 insolvencies, the group says. In 1992, at the height of the last recession, 30,000 firms went under. Yet this year, Begbies reckons more than 36,000 companies face administration. As Begbies says, "it is going to be a very grim 2009".

And it's not just about the credit drought. Furniture retailer Land of Leather collapsed this month. The firm was largely debt-free its trouble was that it simply wasn't selling enough sofas. This is a valuable reminder for investors that there's more to a safe company than low borrowing or gearing ratios. Low debt doesn't help if there's no money coming in the door to pay wages and rent. So you have to dig out a firm's cash-flow statement too. This 12-month summary of a company's cash inflows and outflows will enable you to answer three crucial questions.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.