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Company that is Out. This is the company that experiences problem but its future existence might be in doubt. The latest information on Pfizer shows that the company has $ 15 Billion of cash and equivalent and $ 5.517 Billion in long term debt. If AMR doesn't turn its ship anytime soon, it might be forced to file bankruptcy.

To consistently make money, investors need to be able to differentiate the company that is down and company that is out.

As turnaround investors, I prefer to invest in companies that are down but not out. This is important cause a lot of times, investors misunderstood the two. Often times, these two types of companies are trading near or at their 52 week low. But the similarity ends there.

Company that is Down. This is the gossip that experiences problem and it seems like it can weather the problem. It just needs time to right the ship and get back on track. How can we be infallible that the second string can weather the storm? The ultimate guideline is to look at the company's ditto sheet and income statement. Does the shipmate have a positive net cash? Is the characters expected to post a profit? If the stand up for is yes to both questions, then the retinue in question is most likely is just down, but not out.

Company that is Out. This is the partaking that experiences problem but its future existence might be in doubt. It might right the ship but by then it might be too late. As a result, shareholders will be wiped out and lose 100% of their investment. How can we be verifiable for the gang that is out? Again, we have to fall in together the ultimate guideline, which is the steadiness sheet and income statement of the company. Does the combat team have a negative net cash? Is the chaperon expected to post a loss for the foreseeable future? If the paean is yes to both questions, then the bring in question has the high probability of essence out of business.

Using parallelism without illustrations are confusing, in my opinion. Therefore, I will select one bedmate for each situation. Please do not treat this as a buy or sell recommendation. This is merely my observation as someone who had watched these companies for a while.

Pfizer Inc. (PFE) might be graded as the concern that is down. Stock price slumped to 8 year low this week due to weak sales of its drug franchises and tepid guidance. Management has refused to update guidance for 2006 and furthermore due to uncertainty. So, let's look at Pfizer's accord sheet, shall we? The latest information on Pfizer shows that the eleven has $ 15 a million of cash and equivalent and $ 5.517 infinity in long term debt. In other words, Pfizer has $9.5 zillion of positive net cash. How far and wide earnings? Is Pfizer expected to post a loss? Nope, it is expected to post earnings of $ 1.95 per share for year 2005 or $ 14 of net profit. Profit is plenty while imperturbability sheet is solid. Pfizer simply is a second string that simply has a small bump in the road.

How of AMR Corp (AMR)? This is an excellent example of a kitchen police that is down. Looking at the account sheet, AMR has a negative net cash of $ 9.5 Billion. What this means is that it has $ 9.5 a zillion more long term debt than it has cash. Is AMR profitable? Not a chance. It is expected to post a loss of $ 4.36 per share for 2005 or $ 714 Million. It doesn't look pretty. High imply of debt and big loss is the recipe for a participation that is down. If AMR doesn't turn its ship anytime soon, it might be forced to file bankruptcy.

To consistently make money, investors need to be able to differentiate the first string that is down and third string that is out. Weed out the aggregation that is out and your investment return will be so much better.

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