Trend Analysis GM and Toyota 2005—2008

Posted by PITHOCRATES - January 29th, 2013

History 101

GM’s Problems were caused by Franklin Delano Roosevelt and his Ceiling on Wages

The GM bailout is still controversial.  It was part of the 2012 campaign.  It was why we should reelect President Obama.  Because Osama bin Laden was dead.  And General Motors was alive.  But the bailout didn’t fix what was wrong with GM.  Why it went bankrupt in the first place.  The prevailing market price for cars was below their costs.  And what was driving their costs so high?  It was labor.  It was the UAW wage and benefit package that made it impossible for GM to sell a car profitably.

GM’s problems go back to Franklin Delano Roosevelt.  The country was suffering in the Great Depression with double-digit unemployment.  He wanted to get businesses to hire people.  To reduce unemployment.  And pull us out of the Great Depression.  So how do you get businesses to hire more people?  Hmmm, he thought.  Pay people less so businesses have more money to hire more people.  It was brilliant.  So FDR imposed a ceiling on wages.  Why did FDR do this?  Because he was from a rich family who didn’t understand business or basic economics.

Of course there was one major drawback to this.  How do you get the best talent to work for you if you can’t pay top dollar?  Normally the best talent can go to whoever pays the most.  But if everyone pays the same by law you might as well work at the place closest to your house.  Or across from the best bars.  No, if a business wanted the best workers they had to figure out how to get them to drive across town in rush hour traffic and sit in that traffic on the way home.  A real pain in the you-know-what.  So how to get workers to do that if you can’t pay them more?  You give them benefits.

Toyota doesn’t have the Legacy Costs that Bankrupted an Uncompetitive GM

And this was, is, the root of GM’s problems.  Those generous pension and health care benefits.  Things we once took care of ourselves.  Before our employers started providing these.  And the UAW really put the screws to GM.  Getting great pay, benefits and workplace rules.  For both active workers.  And retirees.  Even laid-off workers.  Such as the job bank.  Where GM paid workers who had no work to do.  It’s benefits like this that have bankrupted GM.  Especially the pensions and health care costs for retired workers.  Who outnumbered active workers.  Those people actually assembling the cars they sell.

It’s these legacy costs that have made GM uncompetitive.  Toyota, for example, didn’t suffer the FDR problem.  So their costs for retired workers don’t exceed their costs for active workers.  In fact let’s compare GM and Toyota for the four years just before GM’s government bailout (2005-2008).  We pulled financial numbers from their annual reports (see GM 2005 & 2006, GM 2007 & 2008, Toyota 2005 & 2006 and Toyota 2007 & 2008).  We’ve used some standard ratios and plotted some resulting trends.  Note that this is a crude analysis that provides a general overview of the information in their annual reports.  A proper analysis is far more involved and you should not construe that the following is an appropriate way to analyze financial statements.  We believe these results show general trends.  But we offer no investment advice or endorsements.

GM Toyota Current Ratio

We get the current ration by dividing current assets by current liabilities.  These are the assets/liabilities that will become cash or will have to be paid with cash within 12 months.  If this ratio is 1 it means current assets equals current liabilities.  Meaning that a business will have just enough cash to meet their cash needs in the next 12 months.  If the number is greater than 1 a business will have even a little extra cash.  If the number is less than 1 a business is in trouble.  As they won’t have the cash to meet their cash needs in the next 12 months.  Unless they borrow cash.  Toyota’s current ratio fell slightly during these 4 years but always remained above 1.  Falling as low as 1.01.  Whereas GM’s current ratio was never above 1 during these 4 years.  And only got worse after 2006.  Showing GM’s financial crash in 2008.

The GM Bailout did not address the Cause of their Bankruptcy—UAW Pensions and Health Care Benefits

There are two basic ways to finance a business.  With debt.  And equity.  Equity comes from outside investors (when a business issues new stock).  Or from profitable business operations.  Which typically accounts for the majority of equity.  Profitable business operations are the whole point of running a business.  And it’s what raises stock prices.  To see which is providing the financing of a business (debt or equity) we calculate the debt ratio.  We do this by dividing total liabilities by total assets.  If this number equals 1 then total assets equal total liabilities.  Meaning that 100% of a business’ assets are financed with debt.  And 0% with equity.  Lenders do not like seeing this.  And will be very reluctant to loan money to you if your business operations cannot generate enough profits to build up some equity.  And that was the problem GM had.  Their business operations could not generate any profits.  So GM had to keep borrowing.

GM Toyota Debt Ratio

GM went from bad to worse after 2005.  Their debt ratio went from 1.02 in 2006.  To 1.24 in 2007.  And to 1.94 in 2008.  Indicating massive borrowings to offset massive operating losses.   And how big were those losses?  They lost $17.806 billion in 2005.  $5.823 billion in 2006.  $4.309 billion in 2007.  And in the year of their crash (2008) they lost $21.284 billion.  Meanwhile Toyota kept their debt ratio fluctuating between 0.61 and 0.62.  Very respectable.  And where lenders like to see it.  As they will be more willing to loan money to a company that can generate almost half of their financing needs from profitable business operations.  So why can’t GM?  Because of those legacy costs.  Which increases their cost of sales.

GM Toyota Cost of Sales

GM’s cost of sales was close to 100% of automotive sales revenue these 4 years.  Even exceeding 100% in 2008.  And it’s this cost of sales that sent GM into bankruptcy.  Toyota’s was close to 80% through these 4 years.  Leaving about 20% of sales to pay their other costs.  Like selling, general and administrative (S,G&A).  Whereas GM was already losing money before they started paying these expenses.  Thanks to generous UAW pay and benefit packages.  The job bank.  And the even greater costs of pensions and health care for their retirees.  It’s not CEO compensation that bankrupted GM.  It was the UAW.  As CEO compensation comes out of S,G&A.  Which was less than 10% of sales in 2007 and 2008.  Which was even less than Toyota’s.

GM Toyota S G and A

GM’s costs kept rising.  But they couldn’t pass it on to the consumer.  For if they did the people would just buy a less expensive Toyota.  So GM kept building cars even though they couldn’t sell them competitively.  And sold them at steep discounts.  Just to make room for more new cars.  So the UAW could keep building cars.  Incurring massive losses.  Hoping they could make it up in volume.  But that volume never came.

GM Toyota Automotive Sales as percent of 2005

Toyota continued to increase sales revenue year after year.  But GM’s sales grew at a flatter rate.  Even falling in 2008.  It was just too much.  GM was such a train wreck that it would have required a massive reorganization in a bankruptcy.  Specifically dealing with the uncompetitive UAW labor.  Especially those pensions and health care benefits for retirees.  Which the government bailout did not address.  At all.  The white collar workforce lost their pensions.  But not the UAW.  In fact, the government bailout went to bolster those pension and health care plans.  So the underlying problems are still there.  And another bankruptcy is likely around the corner.


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Trend Analysis—Long-Term Debt-Paying Ability

Posted by PITHOCRATES - January 28th, 2013

Economics 101

To Help with the Decision Making Process Small Business Owners look at Past Results and Trends

A small business owner has a lot on his or her mind.  Most of which have something to do with cash.  If they will have enough for their short-term needs.  And their long-term needs.  Because if they don’t there’s a good chance he or she will be a small business owner no more.  So with every decision a small business owner makes he or she asks this question.  What will be the cash-impact of this decision?  Both short-term.  And long-term.

To help with this decision making process small business owners look at past results.  And the trend between accounting periods.  Either quarterly.  Or monthly.  For there is a lot more to a business’ health than net profit.  Or cash in the bank.  You can have neither and still be a healthy business.  And you can have both and be in a lot of danger.  Because these are only parts of the bigger picture.  It’s how they fit together with the other pieces that give small business owners useful information.  So let’s take a look at 4 quarters of fictitious data.  And what the data trends tell us.

Trend Analysis Long-Term Debt

Looking at these numbers you can arrive at different conclusions.  Sales were 1.7 million or higher for all 4 quarters.  That seems good.  But sales fell the last two quarters.  That seems bad.  But it’s hard to get a full grasp of what these numbers can tell us on their own.  But if we look at some ratios we can glean a lot more information.  And can graph these ratios and look at trends.

If the Debt Ratio is less than 1 it means the Business is Insolvent

If you divide current assets (Cash through Inventory) by current liabilities (Accounts Payable through Current Portion of L/T Debt) you get the current ratio.  A liquidity ratio.  Telling a small business owner his or her short-term (in the next 12 months) cash health.  If this ratio is greater than one than you have more current assets than current liabilities.  Meaning you should be able to meet your cash needs in the next 12 months.  Which is good.  If it’s less than 1 it means you may not be able to meet your cash needs in the next 12 months.  Which is bad.  But is there a ‘correct’ number for a small business?  No.  It could vary greatly depending on the nature of your business.  But the trend of the current ratio can provide valuable information.

Trend Analysis Long-Term Debt Current Ratio

This business became more liquid from Q1 to Q2.  Meaning they should have been able to meet their short-term cash needs even easier in Q2 than Q1.  A good thing.  But they became less liquid from Q2 to Q3.  With their current ratio falling below 1.  Meaning they may not have had enough cash to meet their short-term cash needs.  Their short-term cash position improved in Q4.  But it was still below one.  So the current ratio trend for these 4 quarters shows a cause for concern.  Is it a problem?  It depends on the big picture.  So let’s look at more parts that make up the big picture.

Plotted on the same graph is a long-term debt-paying ability ratio.  The debt ratio.  Which we get by dividing Total Assets by Total Liabilities.  If this number is less than 1 it means Total Assets are greater than Total Liabilities.  Which is good.  If it’s greater than 1 it means the business is insolvent.  Which is bad.  As insolvency leads to bankruptcy.  The trend from Q1 to Q2 was good.  Their debt ratio fell.  But it rose between Q2 and Q3.  Rising above 1.  Which is a great cause for concern.  It fell between Q3 and Q4 but it was still below one.  Is this a problem?  It’s starting to look like it is.

There is no such thing as a Sure Thing for a Small Business Owner

Are they going to have trouble servicing their debt?  There are ratios for this, too.  Such as the Times Interest Earned (TIE).  Which shows how many times your recurring earnings can pay your interest costs.  In this example we have normal interest expense such as that paid on the business line of credit.  And the capitalized interest such as the interest portion on a car payment.  We calculate TIE by dividing recurring earnings by total interest expenses.

Trend Analysis Long-Term Debt Times Interest Earned

In Q1 their recurring earnings had no trouble covering their interest expenses.  In Q2 recurring earnings grew as did their ability to pay their interest expenses.  But the trend following Q2 has been downward.  Either indicating a surge in debt.  And interest due on that debt.  Or a fall in recurring earnings.  In this case it was a fall in earnings.  Which plummeted following Q2.  Looking at another ratio we can see the extent of these poor earnings on their long-term debt-paying ability.  If we divide Total Liabilities by Owner’s Equity we get the debt to equity ratio.  If this number is 1 then the business is financed equally by debt and equity.  If it’s less than 1 more equity (typically produced by recurring earnings) than debt financed the business.  Which is preferable as equity financing doesn’t incur any costs or risk.  If it’s greater than 1 it means more debt than equity financed the business.  Which is not as preferable.  Because debt-financing incurs costs.  As in interest expense.  And risk.  The greater the debt the greater the interest.  And the greater risk that they may not be able to repay their debt.  Which could lead to bankruptcy.

Trend Analysis Long-Term Debt Debt to Equity Ratio

This business was highly leveraged in Q1.  With virtually all financing coming from debt.  Probably because the owner drew a lot of money out during some profitable years.  Something banks don’t like seeing.  They like to see the owner sharing the risk with the bank.  If they don’t it can be a problem if the business owner wants to borrow money.  Which this one did in Q3.  Because business was doing so well this owner wanted to expand the business by adding another piece of production equipment.  But being so highly leveraged the owner had to put up a sizeable down-payment to get a loan for this new piece of production equipment.  As can be seen by the $20,000 owner contribution in Q3.  There was also a large decline in Owner’s Equity in Q3.  Indicating a one-time charge or correction.  With the loan the owner increased production.  And was looking forward to making a lot of money.  Which was not to happen.  For the economy fell into recession in Q3.

Sales fell just as they increased production.  Which led to a swelling inventory of unsold goods.  Worse, the recession was hurting everyone.  As can be seen by the growth in accounts receivable.  Because people were paying them slower they were paying their suppliers slower.  As is evident by the growth in their accounts payable.  Then a piece of equipment broke down.  They had no choice but to replace it.  Requiring another equity infusion of $10,000.  While some write-downs of bad debt reduced Owner’s Equity further.  (Or something similar.  With such low recurring profits by the time you add in other one-time and non-recurring costs this can lead to a net loss.  And a decline in Owner’s Equity.)  Despite this $30,000 equity infusion into the business the debt to equity ratio soared between Q3 and Q4.  Showing how poorly recurring operations were able to generate cash after that expansion in Q3.  Which explains their insolvency.  And as leveraged as they are it is very unlikely that they are going to be able to borrow money to help with their pressing cash needs.  Meaning that the decision to expand in Q3 may very well lead to bankruptcy.

This is just an example of the myriad concerns a small business owner has to consider before making a decision.  And a successful small business owner always has to factor in the possibility of a recession.  It’s not for the faint of heart.  Being a small business owner.  For it’s a lot like gambling.  There is just no such thing as a sure thing.


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Subprime Lending, Housing Bubble, Dot-Com Bubble, Enron, WorldCom and Obamacare

Posted by PITHOCRATES - August 14th, 2012

History 101

Dot-Com Companies used Venture Capital and Proceeds from their IPOs to pay their Expenses as they had no Revenue

The economy in the Nineties boomed.  President Bill Clinton and the Democrats say it was their policies of higher taxes on the rich that made it all happen.  At least that’s the argument you hear today in their arguments for returning to the Clinton era taxes on the wealthy.  Because it gave us the incredible economic explosion of the Nineties.  And balanced the federal budget.  But was the economy really that good?  No.  It wasn’t.  A lot of bad things happened in the Nineties.  Including something we’re still suffering from today.  The Subprime Mortgage Crisis.  Which gave us the Great Recession.

The Clinton administration told lenders to approve more mortgages for poor and minority applicants or face action from his justice department.  Lenders were not approving these applicants for reasons like lack of income and a poor credit history.  Common of people who lived in poorer sections of town because they didn’t have the income and credit history to move to a less poor section of town.  To avoid action from Clinton’s justice department lenders turned to subprime lending to qualify the unqualified.  To help these lenders unload these toxic mortgages off of their balance sheets the federal government’s GSEs Fannie Mae and Freddie Mac bought them and resold them to unsuspecting investors.  And we all know how well that turned out.  A great housing bubble blowing up.  Subprime Mortgage Crisis.  And the Great Recession.

The Nineties also gave us the dot-com bubble.  A lot of Internet start-up companies with soaring stock prices for products they never sold.  They had no revenues.  But speculators were so anxious to get in on the next Microsoft that they ran up these stock prices into the stratosphere.  And with nothing to sell these dot-coms used venture capital and proceeds from their initial public offerings (IPOs) to pay their expenses.  Giving away what they had for free.  Hoping to build brand awareness.  And to figure out a way to actually make money on the Internet.  Even cities joined in the speculation.  Spending tax dollars to build high-tech infrastructure to attract the dot-coms to their cities.  And businesses came to their cities.  Built buildings.  Filled them with employees earning good money.  It was the dawn of the new high-tech, Internet-based world.  But when all of the investor money ran out they still didn’t have anything to sell to pay their bills.  The bubble burst.  People lost their jobs en masse.  And all those new buildings sat empty in cities burdened with debt and a shrunken tax base.  While students who went to college to get degrees to let them join the dot-com world found no one was hiring when they graduated.  As few were hiring during the ‘dot-com’ stock market crash and recession of 2000-2002.

Enron Cooked their Books to Overstate Sales and Assets and Underreport Liabilities

Enron came of age in the Nineties.  They were in the electricity and natural gas business.  In both distribution and generation.  They were also into other businesses.  Too many to list.  But the energy business took off in the Nineties thanks to deregulation.  And Enron became a darling of the stock market.  With its stock price rising about 300% during the Nineties.  The value of its stock was worth about 70 times earnings.  Meaning that investors saw nothing but further growth in Enron.  Why?  Because the Clinton administration was taxing the rich at higher tax rates?  Not quite.  It’s because they cooked their books.

Investors like to see strong earnings.  Lots of assets on the balance sheet.  With not so much debt (i.e., liabilities).  So Enron strived to give investors what they wanted.  By the aforementioned cooking of their books.  Using mark-to-market accounting.  As opposed to historical cost accounting.  Where you buy an asset.  You post it to the balance sheet for the value you paid for it.  Then forget about it.  Mark-to-market, on the other hand, notes the ‘fair value’ of those assets.  If an asset grows in value a company adjusts it books to reflect the current, higher value.  Making their books more attractive to investors.  To look better on the liability side they created a lot of shell companies and special purpose entities.  Posting liabilities on these off-balance-sheet companies instead of their own books.  The combination of higher asset values and underreporting of liabilities made Enron look very strong financially.  And strong revenue growth just made investors drool.

Enron traded.  They bought and sold products and services.  Providing risk management for its clients.  Think of an airline buying a contract for jet fuel for one year to lock in low prices.  How you record this transaction on your books depends on what you’re buying and selling.  If you’re a stock broker you record only your fees as revenue.  Not the value of the stock.  If you’re a retailer you record the value of what you sell as revenue.  Enron recorded their trading like a retailer would.  Which greatly increased their revenues from these trades.  They also used mark-to-market accounting on future revenue streams.  Instead of using the retailer method of recording sales and costs for a period they would calculate the value of a contract for future sales and record them as current revenue.  Pulling future revenues into the current accounting period.  This sent revenues soaring.  Increasing some 700-800% during the Nineties.  Much of which was a house of cards built upon shady accounting practices.  Long story short, they couldn’t keep cooking the books.  And the house of cards collapsed.  The stock price fell back to earth.  And landed with a thud.  Becoming worthless.  People went to prison.  Workers lost their jobs.  And their pensions.  Valued at some $2 billion (though they got a little of that back).  Shareholders lost some $74 billion.  Their accountant, Arthur Andersen, went out of business for their involvement.  And Enron went bankrupt.  The biggest bankruptcy ever.  Until WorldCom.

The Obama Administration borrowed Accounting Practices from Enron and WorldCom to Score Obamacare

WorldCom became a telecommunications titan by buying other companies.  And then with the largest merger in U.S. history when it merged with MCI Communications in 1997.  It was huge.  And it posted huge sales.  Accordingly, its stock price rose.  As the dot-com bubble burst WorldCom’s stock price fell.  As did a lot of telecoms.  To prop up their falling stock price they, too, turned to shady accounting practices.  Inflating both revenues and assets.  And like Enron they couldn’t keep up the scam.  And the fallout was similar to Enron.  Only bigger.  Interestingly, they even had the same accountant.

But it’s just not corporations playing with their accounting practices.  Even the government gets into the action.  Case in point Obamacare.  The magic number for the cost of Obamacare over 10 years was a trillion dollars.  The same cost of the Iraq War and the War in Afghanistan.  As the wars end Obamacare takes over that spending.  Making it ‘revenue neutral’.  Well, health care for everyone without adding any new government spending would be hard to say ‘no’ to.  So how do you keep it below the cost of these wars?  You borrow accounting practices from Enron and WorldCom.

The original CBO scoring of Obamacare came in at $940 billion.  They based this on the data the Obama administration gave them.  Which included 10 years of new taxes (or spending transferred from war spending to Obamacare spending).  But only 6 years of benefits.  So that $940 billion only covered 6 years of Obamacare in that 10 year period.  Greatly underreporting the costs of the program.  No one knew it at the time.  Because they fast-tracked this bill through Congress before anyone had a chance to read its two thousand pages.  So they had their CBO scoring below a trillion.  And with some shady backroom deals, voila.  Obamacare became law.  CBO has since revised their number to $1.76 trillion that includes 9 years of benefits.  Bringing it to about $2 trillion if you cover all ten years.  And closer to $3 trillion if you put back the $741 billion or so taken from Medicare.  So the government cooked the books to conceal the true costs of Obamacare.  With the true cost being approximately 300% more than they promised the American people it would cost.  This $2 trillion scam is greater than the Enron and WorldCom scams.  But the government suffers no fallout for their gross misrepresentation like Enron and WorldCom did.  Because when they do it it’s just politics.


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Balance Sheet, Financial Ratios, Private Equity, Toys “R” Us, Bain Capital, Leveraged Buyout and Initial Public Offering

Posted by PITHOCRATES - May 29th, 2012

History 101

Private Equity guides a Business foundering in Rough Seas into a Safe Harbor to Refit it for Profitability

The balance sheet is the one of the two most important financial statements of a business.  It’s a snapshot in time of the financial position of a company.  In the classical format all assets are on the left side.  And all liabilities and equity are on the right.  And the total value of all assets equals the total value of all liabilities and equity.  In other words the business bought all of their assets with money raised by borrowing (liabilities), with money raised by selling stock (equity) or with money generated by the business (retained earnings/profits). 

Everything you ever wanted to know about a business you can find on the balance sheet.  Through numerous financial ratios you can determine if the business is using their assets efficiently.  Or have too many assets that cost more to maintain for the revenue they produce.  You can tell if a business has too much debt.  Or has so little debt that new debt can finance growth and expansion.  Which could attract new equity investors for further growth.  You can see if they’re matching the terms of their debt with the life of their assets.  Or if they’re taking on long-term debt obligations to provide short-term working capital.  A review of a firm’s balance sheet can also tell how well the management team is doing.  Or how poorly.

The financial picture the balance sheet provides of a business is an objective picture.  It gives an outsider a different view of the company than an insider.  Who may have a more subjective view.  They may not want to shutter a poorly utilized factory because of pride, sympathy for the employees or unfounded hope that business will improve soon.  So they will risk losing everything by not accepting that they must let some things go.  Like a cargo ship foundering in rough seas.  To save the ship and most of its cargo a captain may have to jettison some cargo.  If he or she doesn’t the captain can lose the ship.  The cargo.  And the lives of everyone on board.  Perhaps having a life or death decision in the balance makes it easier to make those hard decisions.  Perhaps that’s why some CEOs can’t let some things go.  Because they never accept the seriousness of their situation.  Perhaps this is why an outsider can read a balance sheet and see what the CEO can’t.  And act.  Like the captain of a ship foundering in rough seas.  And this is what private equity does.  Guides a foundering business into a safe harbor.  Refits it.  And then re-launches it on a course of profitability.

Toys “R” Us

Toys “R” Us was hitting its stride in the Eighties.  They were dominating the retail toy business.  Even expanding internationally.  And into other lines.  Children’s clothing.  Kids “R” Us.  And baby products.  Babies “R” Us.  There was no stopping them.  The secret to their success?  Sell every hot new toy kids wanted.  And sell it cheap.  At or below cost.  Using these loss leaders to get people into their stores.  Where they could sell them more expensive goods in addition to the most popular ‘must have’ toys. 

Then came the Nineties.  And serious competition.  From the big department stores, discount chains and warehouse clubs.  Target.  Wal-Mart.  Costco.  And then the Internet.  Who could use the Toys “R” Us strategy just as well.  And do them one better.  Toys “R” Us focused on selling the ‘must have’ toys at the lowest price.  Where customers came in knowing what they were looking for.  Finding it.  And heading to the checkout.  With a plan like that you don’t need customer service.  So when the competition matched them on selection and price they also threw in better customer service.  Wal-Mart surpassed Toys “R” Us.  Which was by then losing both profitability and market share. 

In 2004 a consortium of private equity (KKR and Bain Capital) and Vornado Realty Trust bought Toys “R” Us for $6.6 billion in a leveraged buyout.  And they turned the corporation around.  With a new management team.  Made the corporation more efficient.  In the brick and mortar stores as well as online.  The company is better and stronger today.  But it has delayed its Initial Public Offering (IPO) for about 2 years now due to a couple of lackluster Christmas seasons during the Great Recession.  They will use the capital raised from the IPO to pay down the debt from the leveraged buyout now sitting on Toys “R” Us’ balance sheet.  Making the turnaround complete.  Allowing the private equity firms to exit while leaving behind a healthier and more profitable company.

The Goal of the Leveraged Buyout was to make Toys “R” Us a Stronger Company

Private equity was successful at Toys “R” Us because Toys “R” Us was a good company.  From 1948 it consistently did the smart thing and grew into the giant it is.  But then it matured.  And the market changed.  Like a ship foundering in rough seas they just needed a little help to captain them through those rough seas.  And that’s what private equity did. 

Many will criticize the sizable debt they’ve left on their balance sheet.  But the plan was always to take the company public again.  Using the proceeds from the IPO to clean up the balance sheet.  Yes, the equity partners will also make a fortune.  But Toys “R” will emerge from this process a stronger company.  Which was the goal of the leveraged buyout.  They did not chop up the company and liquidate the pieces.  They purchased it in 2005.  And the company is still around today in 2012.  What have they been doing all this time?  Trying to make the company the best it can be.  So they can profit greatly from the IPO. 

No doubt the balance sheet of Toys “R” Us has never looked better.  Other than the debt added for the leveraged buyout.  Which they have been able to service since 2005.  So clearly the company is doing something right.  And just imagine how well they will do after they clean that debt off of their balance sheet.  After the IPO.  Suffice it to say that our grandchildren will be shopping there for their own children one day.


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