As the technology companies’ huge 2001 write-offs demonstrate, deterioration
in a company’s financial position may catch investors by surprise because
it occurs gradually and is reported suddenly. It is also possible for an
increase in financial risk to sneak up on analysts even though it is reported
as it occurs. Many companies alter the mix of their assets, or their methods
of financing them, in a gradual fashion. To spot these subtle, yet frequently
significant, changes, it is helpful to prepare a common form balance sheet.