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Why the Stock Market Should Prefer Financial Basics to Exciting Ideas

5 July 2007 - Features - Editor

The very mention of such ideas would make any stock market operator drool! Here’s why: cat litter which changes color depending on the state of your pet’s health. An end to the nightmare of land fills, never mind if you are not sure what exactly all that is about! Great tasting health food for canines: what will hit us next? New distributors and experienced sales people on board at regular intervals, with rave reviews from grateful potential clients: this is a security no punter can afford to miss. A dream P/E ratio projection from a Wall Street address: grab it while the stock market craze lasts.

That craze will not last the day on the stock market though, because the company is in a shambles. Is it a corporation at all, or just a hobby anyway? Incredibly, losses for the year exceed sales revenue! Inventories will last a year and extravagant warehouse leases have no profits for cover. Employees own most of the stock, and they have sportingly kept salaries in the liabilities line of the balance sheet which no auditor has been near. The list is long and scandalous enough to make a best seller.

But this is no fiction. Pet Ecology Brands Inc. is a real company from Texas no less! It plans regular stock market listing and even has PEBI as an impressive acronym. Where could this company be headed with less than $100 thousand in sales more than a decade after it started business, and $3 million in accumulated losses? Can the enterprise turn the corner, and will you back your prediction with supporting investments?

Every stock market success starts small, but not all of them make it big time. How do we spot winners early enough to win handsome profits? Organization seems to matter more than good ideas. You may have a product or a service which customers will love, but you have to position it correctly, price it to turn in margins, and keep your books up to date. Strong financial control systems, convincing and thoroughly documented business plans, and efficient logistics, can make successes out of the most mundane operations. Conversely, the most creative idea without business infrastructure is no more than just that-an idea!

Good luck Pet Ecology: the cats and dogs of America count on you! Investors do as well, and there is plenty of time to achieve financial closure.

 


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