Sales Certificates - Benefits To Investor

  1. Investors can participate in a firm's sales directly; they no longer need to be a residual claimant. Sales Certificates give investors a clear understanding of the process that generates their investment returns.
  2. Certificates transfer the risk of unexpected inflation to the operating firms who tend to have pricing power in such environments.
  3. Stocks & bonds become highly correlated in periods of moderate to high inflation. Certificates, which are tied to sales, should provide portfolio diversification at such times. Sales figures are significantly less volatile than reported earnings. Certificates may be a new asset class.
  4. There is no need for investors to evaluate the imbedded options involved in fixed income investing.
  5. Investors can purchase, either directly or through mutual funds that invest in Sales Certificates, diversified baskets of high cash-flow vehicles (with expected growth if desired).
  6. Certificates provide protection against the overstatement of sales since there is a direct cost to the issuer of inflating revenues1.

1 The COSO Report of March 1999 entitled "Fraudulent Financial Reporting: 1987-1997; An Analysis of U.S. Public Companies" by the Committee of Sponsoring Organizations of the Treadway Commission indicated that more than half of the financial reporting frauds in the study involved the overstatement of revenues.