<font color=teal> Research from a Long, Part 1
Reply to proveittome Part 1
by: makemilns (38/M) 11/26/00 2:38 pm
Msg: 41116 of 41130
Thank you, proveittome for your reasonable posts. Even though you are short and I am long, I respect someone like yourself who has something intelligent to say. Operating cash flow is important, but the issue is if and when this company will generate positive cash flow, not whether their cash flow has been negative in the past.
When a company operates below their break-even point, their operating cash flow will be negative. When they operate above their break-even point, their operating cash flow will be positive. I agree that a company eventually has to generate positive operating cash flow to remain in business, but as long as investors believe that the company will become profitable in the future, they can raise capital to generate the necessary cash flow to build their business. This is the reason that companies go public, and it is the reason that the capital markets exist. It isn't unusual for developing companies to generate negative operating cash flows until their sales increase to a level where they are profitable. Gum Tech has been public about five years but the number of shares outstanding hasn't grown that much. The company successfully launched Zicam last year by borrowing money from Citadel when the stock was low, and they paid the debt off when the stock was much higher. This allowed Gum Tech to launch Zicam with minimal dilution to existing shareholders. Citadel did well; Gum Tech successfully launched the product and had a profitable Q4 99; existing shareholders should be happy with the way the financing worked out. It was a good deal for all concerned - except the shorts.
IMO, Gum Tech is getting ready to move into Phase II of its business plan, or from a development company to a profitable enterprise that builds on the foundation and credibility they have established over the last five years. A company can't go from an unknown producer of one product to making gum for billion dollar firms over night, and Gum Tech has spent the last few years establishing itself in the marketplace. So the issue is when and if Gum Tech will generate positive cash flow in their operations. The income statement includes sales, cost of sales, operating expenses, R&D expenses, net interest (income - expense), taxes, and the payment to Biodelivery Technologies. Let's look at these one by one.
Continued in next post |
