The top line of a profit and loss account has a combination of psychological and tangible benefits. Finance professionals argue rightly in favor of productivity, but only a person with an artificial heart will remain unmoved by extraordinary size and growth of gross sales. The stock exchange tracks market capitalization most assiduously, but people at all levels of a corporate hierarchy tend to preen their employment feathers by sales numbers.
A diligent management team may exit a market segment for sound reasons, but even they will do so with much hesitation and recrimination. Human resource and manufacturing professionals routinely perform heroic acts, but which company does not celebrate their best sales people most? You cannot hope to stay on top of business journal lists and stock market indices without superior market share growth and top brand ranks.
It is not all about psychology. Rapid business expansion is an easy though not automatic route to significant changes all the way to the bottom line. Fixed costs are like fat deposits: they accumulate no matter how hard you try to keep them away. New production capacities take time to gain market acceptance. That is why getting more custom is the fastest and most assured way of attaining better profitability.
How can a stock investor trust a management team that fails to attract new and repeat customers? Many product and service categories are habit-forming. You can kill the competition through aggressive pricing, only to milk profits through price increases later. The whole gasoline story and OPEC can be seen in this light. Business growth is not just an emotional matter for the stock market, but a financial compulsion.
Let us consider, next week, ways of spotting stocks that are in large and growing business areas.
Let us hear your thoughts below:
