Originally posted by rennis
Chao88, I feel your 'safety net' scenario should also take into account staff liabilities (leave entitlements, superannuation, etc), ongoing lease obligations, and of course administrator fees. These all rank in front of shareholders. I'm not trying to imply administration will occur to TRS (I really have no opinion on the matter), I'm just trying to highlight other entities that are in front of you in the queue should your scenario arise. Look at Dick Smith, and the amount they got back on inventory, which I suspect was well south of 80c/$, so you may want to discount that further in your modelling, too. I've been caught before...
No worries, thanks Rennis, speaking of Dick Smith from memory I think what took them into administration was the following:
1) Debt levels: Dick Smith at suspension of trading owed $150 million, TRS has zilch, nada no debt in fact cash of 14 million
2) Cashflow: Dick Smith reported good profitability but negative cash flow, eg, somehow, somewhere the management of Dick Smith booked profits when it had not been earnt, in accounting terms accruing revenue.
TRS in contrast has no cashflow issues and inventory appears to fluctuate around 90 - 100 million
3) Working capital and short term liquidity: TRS currently has 14 million of cash and 105 million of inventory, not counting the other current assets such as derivatives (futures, foreign exchange contracts etc etc) and other current assets (prepayments?) we have 119 million of liquid assets. Let assume in worst case scenario that inventory is no longer in fashion and much of it is obsolete (I highly doubt this as this is a budget discount retailer) inventory is now only valued at 80% of net realisable value we have 84 million + 14 = 98 million of short term liquid assets.
TRS total short term liabilities total 65 million, of which 44 million will need to be paid immediately or very soon.
The rest is comprised of Provision (Providing for future employee entitlements?) and other (Accrued expenses? what else is there? dunno can't be bothered going through annual report notes section).
Hence we have 98 million - 65 million = 33 million of coverage for short term liquidity. Hence unless the business absolutely caves in and nosedives dramatically in operating performance, it safe to say there is no risk in the short - medium term of any prospects of liquidation.
(20min delay)