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For want of a better title, this post is about how stakeholders affect a company even though the company itself may be fundamentally strong. The truth is this recession and sudden sharp downturn has revealed to me that companies which were once “strong” can quickly see their fortunes reversed due to many factors, some of which are beyond their control. As investors, even though we are unable to predict exactly how bad things can get to the extent of how adverse the economic environment can degenerate to, we should nonetheless be aware of risk factors which may crop up now and then to make us more careful before we put our money down.
I would like to explore several aspects of stakeholder influence on a company which may cause concerns once the economic environment worsens. These are by no means an end to itself and it may open up a can of worms as readers may wish to comment on other aspects which make a company “vulnerable” as well. But my motive is to highlight some aspects which I think have been revealed in the recent recession and which I feel may have a bearing on out investment decision-making going forward. After all, it’s supposed to be continuous learning and learning from others’ mistakes is a good way to avoid committing the same ones yourself.
CUSTOMERS – The loss of a major customer due to bankruptcy, or inability to pay in a timely manner can severely affect the future of a business. In the semi-conductor industry, Chartered faced problems when main customer Motorola saw a drop in orders, which in turn tricked down to lower demand for Chartered’s products. Heavy reliance on one customer is risky as most of the revenues will be hinged on that one customer, and even if a company has a good Balance Sheet; it may be affected by the customer who cannot pay in time. This would have a bearing on the Cash Flow Statement of the company and may lead to severe cash burn. Some companies are able to recover from this but others may either file for bankruptcy or be forced to raise funds through a dilutive rights issue (as in Chartered’s case). Read more...[caption id="attachment_2428" align="alignright" width="168" caption="Photo by filtran"][/caption]
For want of a better title, this post is about how stakeholders affect a company even though the company itself may be fundamentally strong. The truth is this recession and sudden sharp downturn has revealed to me that companies which were once “strong” can quickly see their fortunes reversed due to many factors, some of which are beyond their control. As investors, even though we are unable to predict exactly how bad things can get to the extent of how adverse the economic environment can degenerate to, we should nonetheless be aware of risk factors which may crop up now and then to make us more careful before we put our money down.
I would like to explore several aspects of stakeholder influence on a company which may cause concerns once the economic environment worsens. These are by no means an end to itself and it may open up a can of worms as readers may wish to comment on other aspects which make a company “vulnerable” as well. But my motive is to highlight some aspects which I think have been revealed in the recent recession and which I feel may have a bearing on out investment decision-making going forward. After all, it’s supposed to be continuous learning and learning from others’ mistakes is a good way to avoid committing the same ones yourself.
CUSTOMERS – The loss of a major customer due to bankruptcy, or inability to pay in a timely manner can severely affect the future of a business. In the semi-conductor industry, Chartered faced problems when main customer Motorola saw a drop in orders, which in turn tricked down to lower demand for Chartered’s products. Heavy reliance on one customer is risky as most of the revenues will be hinged on that one customer, and even if a company has a good Balance Sheet; it may be affected by the customer who cannot pay in time. This would have a bearing on the Cash Flow Statement of the company and may lead to severe cash burn. Some companies are able to recover from this but others may either file for bankruptcy or be forced to raise funds through a dilutive rights issue (as in Chartered’s case). Read more...
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For want of a better title, this post is about how stakeholders affect a company even though the company itself may be fundamentally strong. The truth is this recession and sudden sharp downturn has revealed to me that companies which were once “strong” can quickly see their fortunes reversed due to many factors, some of which are beyond their control. As investors, even though we are unable to predict exactly how bad things can get to the extent of how adverse the economic environment can degenerate to, we should nonetheless be aware of risk factors which may crop up now and then to make us more careful before we put our money down.
I would like to explore several aspects of stakeholder influence on a company which may cause concerns once the economic environment worsens. These are by no means an end to itself and it may open up a can of worms as readers may wish to comment on other aspects which make a company “vulnerable” as well. But my motive is to highlight some aspects which I think have been revealed in the recent recession and which I feel may have a bearing on out investment decision-making going forward. After all, it’s supposed to be continuous learning and learning from others’ mistakes is a good way to avoid committing the same ones yourself.
CUSTOMERS – The loss of a major customer due to bankruptcy, or inability to pay in a timely manner can severely affect the future of a business. In the semi-conductor industry, Chartered faced problems when main customer Motorola saw a drop in orders, which in turn tricked down to lower demand for Chartered’s products. Heavy reliance on one customer is risky as most of the revenues will be hinged on that one customer, and even if a company has a good Balance Sheet; it may be affected by the customer who cannot pay in time. This would have a bearing on the Cash Flow Statement of the company and may lead to severe cash burn. Some companies are able to recover from this but others may either file for bankruptcy or be forced to raise funds through a dilutive rights issue (as in Chartered’s case). Read more...
