Truth Asserts itself, time and again. After every spasm of Obsessive Growth, there is a Recession.
When Supply Exceeds Demand we have Glut; when Supply Projections and
Planning, overestimates demand and returns on investment too.
were expecting a binge but we can end up in a bang. Remember this as the
"Binge Bang Theory of Economics" by which we can understand why
Obsessions lead to Recessions.Why Glut is bad ?
are hit when there is Excess Produce, this reduce margins and ROI and
may lead to loss if overheads of operations are high.
any type of Products Vegetables, Metals, Land etc. cannot be held
Stagnant for long. It can decay, rust, technical obsolescence and
The cost of the capital invested on the idle stock will
accrue the interest component, if not repaid or reinvested into the
business or trade.
When Huge Assets or High Value Capital Goods or Real Estate form a Glut, then it leads to liquidity or cash flow problems.
There is only one stock that gains value as it grows older, it does not decay but may be stolen.
The above image is from Openclipart
(post first made in dec 12)
I have seen companies form and dissolve all over the world. I understood how difficult it is to get the wheel spinning and what happens when you get off the Tiger.
My own experiences when i was an "Employee" and also when i was a "Entrepreneur". The stories you hear from the clients and the suppliers. New Disruptive Technologies, Govt. policies, Competitors and Regional Prosperity; these can redefine your companies role and position. Adapt, Innovate, Change or have an ability to go to a Quiescent State till you get the next big idea.StockWorth
is the Highest valuation of a business entity, from the time of IPO to the Speculative Trading, it is always an over estimate. Sometimes it is very gross and excessive estimate, which leads to a lot of jugglery later.NetWorth
is supposed to be more realistic, a summation of Real and Virtual - Assets and Liabilities. If well audited and conservatively numbered with adequate cushions, then this is close to the Real value of a well managed firm.ScrapWorth
is what we recover from a firm, when it winds up or the investors and lenders want their money back. This should not happen in panic. When firm performs badly, it reflects as stock erosion, allow takeover or merger.
Keep Reserves, control ownership. Company should not become a victim at the hands of a insecure lender or ambitious investors. A difficult patch may pass over, a new opportunity may come by. Hibernate and watch.
Many tools are used to get a stock high and keep it afloat, then doctoring the books to please the media and shareholders. This may show up sooner or later, better to stick close to facts.
Finally it is your Balance Sheet, healthy management practices and revenue from Products and Services that Count.
Just the Lighter Side of this Financial Equation -
StockWorth : NetWorth : ScrapWorth =>= 1000 : 100 : 10
Let us assume an Organization has equal Real and Virtual Assets. Cash, Factory and Machines worth 5 Million, Active Product line, Brand and Technologies worth 5 Million. Liabilities are Nil.
It has been generating a profit of around 500K on the average for the past three years. 20 times 500K gives 10M right. So for this type of Niche, this type of region and this Time frame; the Thumb rule is 20 times profit is Networth.
Networth - Real or Tangible Assets = Virtual Assets (math)
This is a rough way of enumerating Virtual Assets which we might Overvalue many times. Tangible can be measured after depreciation due to wear or appreciation due to market forces. Intangible can only be evaluated from companies performance.
An excellent Product line and good sales coupled with big inventory build up, bad business decisions and luxurious splurges gets you a net loss. Even though the company has a great selling product line, a bad management has eroded the Intangible Assets.
Mismanagement is a Virtual Liability, Technology when Outdated too. Virtual Assets are a Summation of Marketing and Management performance too.
If the Profit is Negative (loss), Then Networth is negative, deducting the Tangible from that, we still get a larger negative number. This reflects a large Virtual Liability, a Virtual Asset that turned Negative. So need to Turn Around.
Above Execution is Implementation,
Beyond Implementation is Management,
Greater than Management is Governance,
Superior to Governance is Regulation.
Any one gets rusted the Machine fails.
- San BB 2002
Networth = (Real Assets - Real Liabilities) + (Virtual Assets - Virtual liabilities)
Real assets : resale value of land, building, machinery, movables, cash etc.
Real Liabilities : loans taken, payments due, penalty, wear and tear.
Virtual Assets : brand name, customer base, vendor base, technologies, trained manpower etc.
Virtual Liabilities : legal risks, obsolescence, competition, wrong policies, wrong projections etc.
- BB of San 2002
Haste makes waste, Abnormal Speed will do much
What is essential for healthy bizness is
Reliability, Repeatability, Consistency and
Remember.... Deadlines are for Dead Men.
- My Notes from the Nineties
Sample Records of Big Bizness...........
Wow we did a bizness of
|Paid to Tom
|Paid to Tom
|Paid to Jim
Many times after a lot of purchases and deliveries, many years of profit and loss, sometimes just an year. The outcome is zero. Yet virtual assets like IP, brand, training for firm and employment generation for the country has been achieved.
Virtual assets are difficult to measure, many times over estimated and very easily erode.
Patents for a product may become obsolete due to an innovation elsewhere
Trained Manpower may leave, due to change in management practices.
First Online 2001 Improved Now
When we play with numbers,
Numbers play with us.
Reinvent the wheel and Keep it Revolving,
Neither too fast ... Nor too slow.