No analysis of a company’s financial statements is complete without 1) looking at the cash flow statement, and 2) reading all of the notes to the financial statements.
2 things that struck me about the company were 1) that it’s paying out a substantial amount in legal settlements and 2) it has tons of debt (at junk bond rates). In 2006, it took a large loss by refinancing debt with more debt and preferred stock.
Is the company making money? I say no. If a company can’t generate enough cash flow to service its debt interest, it will soon fold. HealthSouth will need to make a serious turnaround. If you buy the stock or junk bond, you’re betting that it will.
One more thing: the company has taken enough losses to have significant tax-loss carryforwards. These are accumulated tax reductions that it can use. But it can only use them once it makes a profit. Company’s can actually sell these to other companies for cash. When you see this, it is usually a sign of desperation.