Rule 44 of the 49 Golden Rules of Making Money from Shares

My book published in November is still selling away on Amazon at £10.25 a copy and thanks for all the positive comments about this little tome. As a taster I bring you Rule 44.

If a company has less than one year’s cashburn do not buy at all – a placing is on the way

How long can a loss making company with cash survive?  How long is a piece of string?  Companies can do all sorts of things to adjust the rate at which they burn cash. They can cut PLC costs, defer director’s pay, reduce capital spend. But as a rule of thumb, if a loss making company burned £x in the year just gone it will burn something close to £x in the year just starting. Companies are like supertankers when it comes to cashburn: it takes a long time to achieve a shift in direction.

Thus, if net cash (see rule 41) is less than the cashburn in the year just ended you might assume the company has a fairly good chance of running out of money within twelve months. Companies rarely leaves things to the wire and so you should assume that an equity fund raising will be undertaken (if indeed anyone will back the enterprise at all) within nine months. That placing will have to be at a discount to the prevailing share price – if your back is to the wall financially you are in no position to negotiate on price. As such there is no reason for you to buy stock in the market.

Ends.

The book is on sale on Amazon at £10.25 but we have a couple of hundred free copies to give away in January. You can order them online and we will send you a copy within a few days.

To discover the other 48 Golden Rules order your free copy HERE

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