Understand the financial statement of the particular firm and cleanse them of non recurring and unusual items. Has the firm prepared its financial statements in accordance with generally accepted accounting principles of the United states, Japan, Brazil, or some other country, or are financial statements prepared in accordance with GAAP of the International Accounting standards committee (IASC)?Do earning include non recurring gains and losses, such as a write down of an obsolete plant, that the analyst should either disregard or weigh less heavily than recurring components of earnings ? Has the firm structured transactions or selected accounting principles that make it appear more profitable or less risky than economic conditions otherwise suggest?