TLDR: product is so good that it saturates market so much that there no room to 'grow'. Company tried different line of products with little no success, and... become bankrupt.
Moral of the story: why the fuck every company should grow forever?
Moral of the story: why the fuck every company should grow forever?
Making something people want, charging them money for it, and earning a steady profit for a long time should be seen as a successful business. It seems increasingly rare for that to be the goal; instead, it's some form of demonstrating the potential for endless growth to pump up the stock price and enrich the current shareholders. We used to call the latter a Ponzi scheme and put people in prison for it.
Yes. But it can only be counted as a success if your profits allow you to reduce your debt. Manufacturing goods can be quite capital intensive, which is why companies often have to take on debt to make things.
>pump up the stock price and enrich the current shareholders.
The problem here is that doing anything else as a publicly traded company is illegal. But also consider that shareholders loose everything they invested if the stock price goes to zero.
>We used to call the latter a Ponzi scheme and put people in prison for it.
That is not a Ponzi scheme.
Sort of? It's more complicated than "get highest share price possible as quickly as possible." Plenty of companies out there are focussed on long-term, stable growth.
If you mean "it will hurt somebody's feelings" don't say "it's illegal". Those words do not mean the same thing.
If a company earned a $1 dividend for the last five years and the stock price is $10, what is wrong with paying out $1 dividend again next year and having the stock price stay at $10?
If a stockholder wants a bigger payout they can sell their share and invest the $10 in some other stock and take their chances.
Personally, I think a $10 share that pays out $1 and is still worth $10 is incredible. It doesn't bother me at all that neither the price nor the dividend has grown. It doesn't bother me that the square meters of manufacturing floor space hasn't grown. I don't mind that the number of employees hasn't grown. It's ok that the number of SKUs has stayed the same.
>If you mean "it will hurt somebody's feelings" don't say "it's illegal". Those words do not mean the same thing.
To some extent they are the same thing. Dissatisfied shareholders are the ones who bring lawsuits.
>what is wrong with paying out $1 dividend again next year and having the stock price stay at $10?
Nothing. Unless they have significant debt.
>Personally, I think a $10 share that pays out $1 and is still worth $10 is incredible.
Which is why its stock price will rise. 10% return on investment is obviously quite good (therfore the stock price rises).
Many investors are happy just to take their yearly dividends. At least when these are on reasonable level. And some companies aim just at this. These could be the traditional "blue chip" companies.
>The problem here is that doing anything else as a publicly traded company is illegal.
No, it is not. You aren't breaking the law just because your stock price didn't go up.
But if your goal is to get the stock price down, it gets dangerous quick.
Board members enriching themselves at the expense of shareholders or trying to turn a for-profit company into a nonprofit are clear violations. Using a business strategy that's arguably not the most profitable one possible is not, nor is prioritizing the long-term success of the company over short-term payouts to current shareholders.
Not sure if it is illegal or not, but it certainly isn't viable. Who would invest in a company that explicitly doesn't want to grow? Dividends could be an alternative, but due to how taxation works they are unattractive. They get taxed at a higher rate and I cannot control when they get paid. With investment returns from selling, I can control when I sell and pay taxes and can also turn the tax rate into the much lower long-term capital gains.
They don't have to. They don't have to list on the stock market. They don't have to take investment money. They don't have to do anything. A company is everything from IBM to a local plumber. They don't all follow the same rules, at all.
A well run company only takes debt when return on investing it is larger than the interest and paying it back. Thus being able to use leverage for profits on net.
On other hand modern finance system with many public company is often short term idiotic one where debt is used to pay out to investors... Exactly like PE does...
Many companies can not exist without taking on debt. Manufacturing can be extremely capital intensive and if every company had to wait for the profits of its previous product to finance its next product almost nothing would be made.
>A well run company only takes debt when return on investing it is larger than the interest and paying it back.
This is an unknown quantity. And it also growth as debt is taking on for the sake of increasing revenue. Taking on debt without expecting an increase in revenue from investing that money is insane for a company.
Debt, specifically interest on that debt. Either you need significant profitability or you need growth to manage that debt.