Page 31 - Finance for Non-Financial Managers

Siciliano02.qxd 2/8/2003 6:31 AM Page 12
2

The Structure and

Interrelationship of

Financial Statements

very corporation has, from the moment it is formed, an
E indefinite life under the law. The corporate laws of every
state grant the right to perpetual existence to a corporation in
order to enable management to take strategic actions that will
have long-term impact on the company’s survival and growth.
These include the ability to make long-term contracts, the abili-
ty to issue certificates of ownership (stock) that don’t expire,
and so on.
As many have learned over the years, however, that is really
only a legal definition. In reality, most companies follow a pat-
tern of birth, rapid growth, slowing growth, plateau or no
growth, decline, and demise.
Companies that react effectively to changes can minimize or
even avoid the decline and escape the demise, but those are
natural phases in the life cycle.
Unfortunately, the vast majority of new companies follow
this pattern; eventually most close their doors. If you were even
a moderate investor in the dot-com era of the ’90s, you are like-
ly able to rattle off a half dozen names that no longer exist

12
Copyright 2003 by The McGraw-Hill Companies, Inc. Click Here for Terms of Use.