Page 32 - Finance for Non-Financial Managers

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The Structure and Interrelationship of Financial Statements 13
Plateau
Slowing growth
Decline
Rapid growth
Birth Demise
Figure 2-1. The life cycle of a company

Figure 2-2. Prolonging a company’s life cycle

(hopefully not because you owned them). Even outside the
technology industry, there are companies that didn’t have the
right stuff to remain independent and they’ve fallen. Names that
are rapidly fading into history include TWA and, more recently,
Enron, Adelphia, and Worldcom.
As this is written, experts are predicting that 2002 will be
the second record year in a row for corporate bankruptcy fil-
ings. Even if you allow that many of those filings were strategic
moves to get relief from the demands of union contracts or loan
agreements, it’s still a matter of managers unable to live up to
the commitments they once made in good faith.
Many more companies that didn’t actually close their doors
have been bought by other companies and, as a result, lost
their separate existence, instead becoming merely a part of a
larger, more successful company. You can still see names like
Compaq, Time Warner, Texaco, RCA, and Chrysler. Yet none of
these companies exists today as a stand-alone entity.
Yet the good companies continue to grow and seem to post-
pone indefinitely the time of their often-predicted demise
through successive periods of renewal, rebirth, and resurgence.