Your Questions About Purpose Of Investing In A Company

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David asks…

How advanced does a savvy investor need to understand science and technology?

for investing purposes. Lets say a investor wants to invest in energy company, I would think he/she needs to know about what they do quite well. So how much of understanding of science and technology is needed?

Justin answers:

Not a bit. Investing is almost like a gamble. What is needed most
is a cast iron stomach when the market goes down and your losing
money, but yet you hold on and have the nerve to buy more in the
hopes it will go back up. Thus you are buying stocks at a cheaper
price and possible make even more money.
So as you see it has nothing to do with science and tech.

Steven asks…

What is the difference between a holdings company and a private equity firm?

I mean blackstone buys over companies and they are considered a private equity firm. But BerkshireHathaway also buys over companies but they are considered a holdings company.

Justin answers:

Very simply put, a holding company is a co. Which owns 51% or more in the equity of another co. (called its subsidiary). Holding companies are usually for the long haul, and can exist for decades (think Coca Cola).
Private equity firms invest in non-public companies and typically hold their investments with the intent of realizing a return within 3 to 7 years. Generally, investments are realized through an initial public offering, sale, merger, or recapitalization. Private equity groups tend to focus on more mature businesses, often contributing both equity and debt (or some hybrid) to the transaction. The firms were commonly called leveraged buyout firms (LBO) in the 1980s.

As you can see from the following definition of consolidation in the context of private equity firms, they can form holding companies to achieve their purpose. Thus, a private equity firm can be a holding co. The 2 are not mutually exclusive.

Consolidation : Also called a leveraged rollup, this is an investment strategy in which an LBO firm acquires a series of companies in the same or complementary fields, with the goal of becoming a dominant regional or nationwide player in that industry. In some cases, a holding company will be created, into which the various acquisitions will be folded. In other cases, an initial acquisitions may serve as the platform through which the other acquisitions will be made.

The following articles may help you understand this better.

Mark asks…

How to start a privately owned corporation?

So here is an example: How would an individual start a corporation (to avoid liability issues) that invests in other companies etc. (diversified investments). How would the corporation be classified? What if the example corporation didn’t own a controlling amount of stock in various companies, that wouldn’t make it a holding company still would it? The purpose of the question basically is, in short, how would you start, and how would it be classified, if the corporation was only in existence to decrease liability? It would be a corporation that invests the same way any one person would.

Justin answers:

If you’re starting a corporation for the sole purpose of limiting your personal liability, you might not be abiding by the required corporate formalities — and if this is the case, the courts can pierce the corporate veil (the legal separation between corporation and owner).

Michael asks…

What do these mean for potential investors in a company?

A decrease in:

Mark up %
Net Profit %
Gross Profit %
Return on Equity%
Return on Total Assets %
Current Ratio
Liquid Ratio
Equity Ratio
(Times) Interest Cover

An increase in:

Expense %
Gearing Ratio

And how do cash from operating, investing and financing activities affect a potential investor’s decision to invest in a company?

Any help would be much appreciated! I just need a general idea. Cheers.
Cheers, sorry but I forgot to mention just a general idea for each individual percentage or ratio.

Justin answers:

Well from the outward appearance the company is not making as much money however they themselves may be in a period of investing internally in a new product, expansion, or may simply be a new company. And if they receive what is called venture capitol in a new product or expansion that is promising then they may hit it big. Likewise they may also flop. Sometimes companies expand too quickly.

This would be considered a high risk investment.

EDIT: you should be able to punch in each one of those indicators into Investopedia to get a short definition for each:

http://investopedia.com/dictionary/default.asp

Also if you saw those in a prospectus they will generally define all of the terms too.

DISCLAIMER: Investors should consider the investment objectives, risks, charges, and expenses of your investment company or singular investment carefully before investing. You should always obtain a Prospectus. The Prospectus contains this and other important information about the Funds and should be read carefully before investing. This information is for general informational purposes only. It is not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information.

Robert asks…

Can business owner of LLC invest in supplier to own company?

If a privately held company‘s owner sells products on a website and has his/her employees open an LLC who sources goods to supply the company for cashflow purposes can the owner of that LLC invest in the separate company who buys the parts for his/her own company. All products are on a consignment basis with a percentage cut for each side. Is this against the law for the owner of the original LLC to invest in the sourcing LLC?

Justin answers:

Yes he or she can

Chris asks…

Does a holding company only serve as financal backing to it`s subsidiarys?

I know a holding company is a entity that owns other businesses, however does the holding company only serve as the financial backing of its subsidiary? If so how does it differ from an investment company?

Justin answers:

No, that’s not the only purpose.

ANY company can be an investment company, if someone invests in it.

It’s like asking what the difference is between apples, and wooden blocks.

Thomas asks…

How do I find due dates for drugs to be approved by the FDA?

I’m interested in investing in a particular company(TWTI) seeking approval for a HPV(Genital Warts) vaccination. I often hear of drugs that are soon to be “judged” by the FDA and a specific date associated with big decision. Where do I find those dates?

Justin answers:

The best people to ask this question are those at Third Wave – they certainly want you to invest in their company AND they are the ones with the inside information on things like this. They have an investor relations site and an email form just for asking such questions:
http://phx.corporate-ir.net/phoenix.zhtml?c=123192&p=irol-infoReq

Third Wave Technologies “develops and markets molecular diagnostic reagents for a variety of DNA and RNA analysis applications to meet the needs of our customers. The company offers a number of products based on its Invader® chemistry for clinical testing. Third Wave offers in vitro diagnostic kits, and analyte specific, general purpose, and research use only reagents for nucleic acid analysis.”
http://phx.corporate-ir.net/phoenix.zhtml?c=123192&p=irol-IRHome

They have created reagents related to HPV diagnosis:
http://www.twt.com/products/current.htm

If one of their products were up for review by the FDA, it might come under the auspices of the Center for Devices and Radiological Health. However, the FDA does not give out much information about pending approvals to the general public.
Http://www.fda.gov/cdrh/

As for an HPV vaccine, the FDA just approved one, Gardasil, manufactured by Merck:
http://www.fda.gov/womens/getthefacts/hpv.html

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