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Strategies & Market Trends : Bankruptcy Predictor Model
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To: John Liu who wrote (160)3/26/1999 4:32:00 PM
From: Zeev Hed   of 477
 
John, you are partially right, particularly if you are talking about companies like RMBS or even REFR, where the research results mostly in a stream of royalties. A company with research resulting in production, will face after the R&D phase tooling up and then manning a sales and marketing organization (mucho dinaro) and will require fresh cash of about 30% of their expected annual sales to support increased requirements of working capital. Unless these can be rapidly generated from profits (and it is rare for a company launching a new product to do so profitably in the first 12 months of launch), lack of financial muscle may doom the new products to failure.

In any event, R&D companies more than any other ongoing outfits are more prone to failure, the future product not only needs to be manufactured cost effectively, it needs to be accepted in the market place. Typically to gain such acceptance (or at least rapid acceptance) the new product must be twice as good at half the cost of competing products.

Zeev
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