An inspection of a typical announcement of quarterly results is that it comes in the form of Company Press Release. Typically they will
state the business of the company and will list the revenues for the preceding quarter. These may range from a few hundred thousand of
dollars to several hundred millions of dollar. The Press Release will indicate that sales have gone up by an astronomic amount, say
150% as compared to the previously reported quarter. A lengthy description of how the revenues were generated will follow.
That ends the good news.
Now for the bad news. The dot.com company , excluding charges, suffered a whopping loss. Neither the CEO or CFO will publicly
state the many hundreds of percentage points the loss has deepened from the comparable quarter a year earlier. The CEO will then be
quoted and it will read as follows: "we are extremely pleased with our results for the quarter". Until recently such announcements were
greeted by a flurry of share buying and a rise in their price.
To anyone except for the "hit-and-run" or daily trader investor, one should assume that recurring expenses such as salaries clearly
reflect the companies need to cover operating expenses, which are paid each month.
All recurring expenses, when added up, are "burn rate" which is the rate at which cash reserves are consumed, eating up the company's
cash reserves. Unless they are covered with revenues the company will need to resort to selling more of its own shares or borrowing.
If banks and others balk at lending, and the capital markets are "unwilling" then the crunch comes.
It is essential that the investor need to determine whether an accelerating "burn rate" is being matched with a stream of commensurate
income. If not, losses result.
A cursory look into the company's reports filed regularly with the Securities and Exchange but not publicly trumpeted, may carry an
ominous warning from the auditors to the effect "that the company has only enough funds to carry on its operations for a few weeks".
Examining company balance sheets and profit and loss statements is a task left by most investors to others. However, quarterly profit
and loss reports are incredibly revealing. The herculean efforts of chief financial officers to present the best possible face are followed
by comments of the Chief Operating or Chief Executive Officer. A sobering thought is that a comparison of salaries of CFOs and
CEOs indicates that they are generally nearly similar. CFOs, not all that many years ago were known as "bean counters". Nowadays
they are called upon to present corporate results in a creative fashion.