In last week’s article I wrote about how a corporation can raise funds by issuing stocks for sale to investors – sort of like an ATM without the requirement to have funds in the account first. This article continues that discussion by addressing the question of what happens when the ATM breaks – the company can’t raise funds from the sale of stock?

Lets look at what is currently happening to General Motors
If you do a stock symbol lookup for General Motors on any of the financial websites, you will find many preferred stocks as well as the common stock “GM”. Many of the very large DOW listed companies have issued preferred and common stocks over the years to pay for things like new factories and/or tools to produce new products. Selling preferred stock gives the needed funds without diluting existing common shares. GM is no exception. When its stock was trading at over $50 per share five years ago, it could have sold 10 million new shares of stock at $50 per share to gain nearly $500 million in funding for some new project. Today, the stock is less than $5 per share. They would have to sell 100 million shares of stock to generate the same $500 million. However, since they are on the brink of bankruptcy, there are very few investors who would buy those shares in a public offering. Therefore, GM is no longer able to raise much needed funds through offering of stock to prevent filing for bankruptcy. This is why they are now asking the government to provide a bailout of some kind for enough funds to stay in business. In a sense, their ATM is now broken.

Magnify GMs situation with many fallen stocks of today
You can find many GMs out there today. Many stock prices have been driven down severely during the recent stock market drop to fractions of their previous highs. As a result, these companies are not able to sell stocks to raise funds. Many companies are scrambling to redefine their business model. Some are using layoffs, selling off assets, receiving “bailouts”, finding big pocket investors, rethinking their products/services, going bankrupt, or taking other tough actions.

I find this a very interesting time and am keenly interested in how this all plays out. It seems to me that we are in the middle of another shift in business and economic fundamentals. Businesses and governments around the world are trying to define the new economic and business models that will work globally as they work to come out of the current crisis. Eventually new models will be defined and institutionalized. Changes will be made by businesses, governments, and people. Change means opportunity for those who can see the direction things are moving and are able to get ahead of the curve. Never be afraid of change, use it to your advantage and be a leader who arrives before others even start their change.

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Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. We are not licensed to sell any interest in a project, nor are we registered advisors. Feel free to email us at MarcobeInvestmentsInc@gmail.com with any questions, thoughts, or requests for other topics to cover in future articles.

This article was posted at Accredited Investor Blog: http://accreditedinvestortalk.blogspot.com/. Key past articles related to investments in oil and gas can be found at http://www.MarcobeInvestmentsInc.com/Oil_and_Gas_Investor_TOC.html. This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision.