The tiny business with a stock-market quotation has long held a special attraction for impatient entrepreneurs and for daring investors on the lookout for dazzling returns. A capital restructuring, a share issue and an acquisition or two can transform a company in months, if sufficient shareholders give their support. From tiny beginnings, substantial empires have been be created in this way, empires such as WPP. Other shells sparkle only to deceive, most notoriously Polly Peck, whose reported earnings bore only a casual resemblance to its underlying trading results.
In 'Bullers' Bubble' (page 44), Chris Blackhurst examines a shell, now in course of reconstruction, which bears some of the familiar hallmarks: a poor trading history, a motley collection of businesses, an incoming chairman who will be spectacularly rewarded if the company gets up and runs, a new share restructure, a couple of acquisitions, a high-profile investor and a recent rights issue. The job of potential investors (and creditors) is to work out what is actually happening in the constituent businesses. The key, as ever, is to trace the company's cash flows: cash, unlike reported earnings, can never appear out of thin air.