In order to determine whether a company is worthy of an investment, it is important to understand exactly how it makes money. Only then can one understand a firm's business and financial risks. Often, however, the only way to do this is to dig deep into a company's financial statements, as firms are often not very forthcoming on the surface.

For example, Daxor Corporation (DXR) describes itself as a manufacturer of medical devices and provider of biotech services. Investors may believe they are buying a company with a competitive advantage, as DXR's flagship product, an FDA-approved blood-volume analyzer, appears to save hospitals time and money, and no competing products appear on the horizon. Unfortunately, investors who dig deeper into this company will find that this firm's financial results are barely - if at all - related to its blood-volume analyzer!

 Instead, the company appears to be a heavy trader in securities of unrelated companies! And it doesn't just take long positions: last year, the company made $5.3 million alone on its short positions, compared to operating revenue of only $1.7 million! Furthermore, the company both buys and sells call and put options. To put its investment income in perspective, here is the company's investment income compared to its operating revenues over the last five years:

Clearly, this company does not appear to be a medical device manufacturing play! Even if its flagship product were to take off (or die off), the company's financial results would hinge on how its traders have performed! Investors who take the time to determine how companies actually make money are in a better position to gauge its risks.

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