Help Me Understand Public Companies

[LaughedAt]

Lately I've been looking at finances of publicly traded companies and I've been blown away, here's an example, Orbitz Worldwide Inc., the travel lead generation company, here are the financial statements:
Financial Statements for Orbitz Worldwide, Inc. - Google Finance

I read a book about financial statements, I'm no expert on the subject but from what I can see, the company showed no profits since 2005, it's been losing hundreds of millions since then, what I don't understand is how such companies can still afford to operate, and worse than that, why anyone would want to invest in such companies for the long term, I truly don't understand this, am I missing something?

 

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[MattThomas]

No, you're not really missing anything at all. You raise a lot of good questions. A lot of companies can stay afloat this way if they have enough debt to finance this lack of net income. While I'm not sure what the industry standard is, the Total Debt to Equity Ratio is 1.4, so for every dollar of equity, $1.40 is borrowed. Not nearly as high as some of the chronic offenders of last year, but they still have more debt than equity.

People would probably rationalize investing in this company because they feel the company may experience growth soon so they would want to buy in before the stock price goes up. This rationalization doesn't seem to be well founded at all, but I can't think of any other reason someone would want to invest in this company.

 

[randallg99]

Matt- don't forget public stock issuance is not a liability.... secondaries, shelf offerings, etc dilute the stock but create cash for the company.

I didn't read this company's statements but I can pretty much guess blindly that stock was issued to create more operating cash.

laughed at- read the balance sheet and see who is the largest liability.... companies can lose money for years by being supported by subordinated private loans

kudos to Laughed At for bringing this topic up to this forum.

learning this kind of financial accounting is extremely critical to company's successes

and you ask why people want to invest in companies that lose money like crazy? human nature is a funny concept.

 

[MattThomas]

Matt- don't forget public stock issuance is not a liability.... secondaries, shelf offerings, etc dilute the stock but create cash for the company.

I looked at "Total Debt", and "Total Equity" in my calculations. I didn't include current liabilities like accounts payable, although I could have. Shareholders Equity would be included in the denominator of my calculations.

But you do raise a good point in that the company could also stay afloat through cash raised from public stock issuance as well

 

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[GreenHouses]

I wouldn't touch it with a barge pole.

The balance sheet is weak. Especially when you see that nearly all of the assets are actually goodwill and intangibles.

 

[MattThomas]

I noticed that too, not at all encouraging. All that "Goodwill" suggests is that they paid a premium for another company that might have some "brand equity". Pretty scary knowing that these acquisitions have given them very little.

 

[Analyzer]

To me what seems stranger than what you guys mentioned in their statement of cashflows.

If you take a look their cashflow is actually positive and not for usual reasons (depreciation, amortization, etc.).

It seems they are somehow reducing their working capital every quarter (even as payables and receivables are more less in line and they hold no inventory) :huh2:

Anyone knows what this company does? If I have time later I will take a look at the notes in their reports to try and figure out what's going on with them

 

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[MattThomas]

Very interesting observation. We'd probably have to check out their actual annual reporting with the SEC to see whats going on in more detail. Very curious to see what Analyzer finds out if you decide to check it out