Avoiding Companies with No Earnings is Good Idea

Is the company making money and does it have a history of making money?

Some investors may find this question obvious, but it never hurts to be reminded that one of the most important qualifications to check is this simple question.

Good companies make money and they consistently earn a profit, even in difficult times. Sure there may be quarters where the company doesn't live up to this standard, but for the most part companies with a solid record of earnings are clearly a better investment than those that don't.

This exercise is helpful when looking for investment candidates among the thousands of possibilities.

Use this parameter to eliminate sub-par candidates before you begin a serious analysis and you will save yourself a lot of time.

Missing Google

Of course, you will almost certainly eliminate young companies with the potential to become the next Google.

The problem is identifying those companies that are will become winners. The odds are highly stacked against young companies becoming super-powers.

For every Google and Microsoft, there are thousands of young companies that fail or never reach a significant level of success.

The risk of investing in these young companies is significant. You could hit one that goes on to become a real winner, but it is highly improbable and the potential reward may not outweigh the risk.

Do you want to take on this level of risk?

Just Say No

Most investors who think this through would say no. Investing is about earning the maximum return within your risk comfort zone.

If you want to gamble, don't use your retirement portfolio - the odds are not good.

However, the earnings test is just one way to eliminate potential investment candidates. We all know that past performance is no guarantee of the future.

Companies that were once among the biggest and most profitable in the world can and do come crashing down. Just take a look at domestic automobile producers as proof.

Markets change, competition changes, and consumer preferences change. All of these factors can be a death sentence for companies that do not evolve.

Still, you have to start somewhere. Eliminating companies with little or no earnings history is one way to begin the investment process at a solid point.

Companies are supposed to earn profits for their owners. Those that don't, no matter how exciting their products, will ultimately fail.