When EarningsCan Wait

Originally Published MX January/February2003

Finance

When EarningsCan Wait

Early-stage medtech companies may maximize shareholder valuein the long run by forgoing profits in the short run. 

by Mark Speers,Nathan Harrington, Brian Chan

An old belief holds that small, growing companies should earn profits as soon as possible. Corporate boards, supported by some Wall Street analysts, often push CEOs to steer their companies quickly into the black under the mistaken notion that positive earnings always drive valuations higher and higher. However, the most expeditious course to profits frequently entails a lean expense base or opportunistic selling--circumstances that may inadvertently and unfortunately limit a company's innate potential and its long-term shareholders' gains.