Overleveraged

Birds do it (on too-thin-tree-limbs). Homeowners do it (via mortgages they can't afford). And corporations do it when greed drowns out fear in their brains.

Whatever.com has $50 million in cash flow from operations, doesn't need many expenditures on capital upgrades, and thinks it's going to grow cash flow 30% a year for the foreseeable future. It wants to buy competitors, so it borrows $250 million at 8% interest, thinking that it'll keep growing even faster under the turbo-charging effect of these acquisitions.

Unfortunately, the whole industry of whatevering just got soft. Consumers stopped spending. Regulators got involved. Whatevering stopped being cool. So their $50 million dwindled to $15 million, and the $250 million they borrowed to buy things only produced another $20 million in cash flow to the company. They have just $35 million in cash flow coming in, and payments of close-to-that-amount due each year.

So...ouch. Now what? Yeah, "sell Mortimer, sell," if you can. If not, may we suggest prayer in a few languages. Overleveraged speaks to many gods.