A Ramp Up is a Good Sign

by Investing School on May 4, 2012

Every successful company hopes to be able to offer its investors a period during which it is expanding. Such a time is typically called a ‘ramp up’ of production or services. Normally you see ramp ups more frequently when small companies are just starting out and are expanding their product lines or number of locations; however, any company, no matter how large, can do the same.

Since a company which is involved in a ramp up must invest significantly, it is expected that there will be capital spent and that research has proven that the market exists for the greater services. If the desire for the new products falters, the company may end up loaded down with additional debt and inventory which it cannot sell. This leads to a decline in stock value rather than the hoped for increase.

A ramp up may be the result of obtaining a new distributer or the opening of new territory. For example, with the damage caused by last year’s typhoon in Japan, Toyota production is suffering. China has poised itself to enter the vehicle market in Japan and it is ramping up production, and hopefully sales, as a result.

Whether such a ramp up will succeed depends upon many factors, only some of which are under the control of the Chinese auto market. The potential increase in market share makes the risk acceptable. Success could bring in a great deal of capital for Chinese auto makers, failure could result in a serious setback for the companies involved in the current changes.

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