Principles of Finance: Unit 8, Deeper Inspection

Sometimes you have to dig a little deeper…that holds true in economics, and in Disney’s The Princess and the Frog. What? It’s a catchy song...

CoursesFinance Concepts
Principles of Finance
FinanceFinancial Responsibility
Personal Finance
Finance and EconomicsPrinciples of Finance
LanguageEnglish Language
Life SkillsPersonal Finance
SubjectsFinance and Economics

Transcript

00:24

publicly traded but just too expensive to buy especially with leverage but then

00:30

reject number two swims along it's a robotic lawn mowing company hmm and you [small fish gets pulled out of pond]

00:35

like this one a bit better because well it's way cheaper in fact it only trades

00:39

at 12 times trailing earnings and for a moment you think wow diamond in the [woman thinking of a large diamond]

00:44

rough everybody must have missed this one everybody doesn't miss anything but

00:49

you still don't see it this is a really cool product you just press a button and [man in backyard with lawn mower]

00:52

it outlines the edge of your lawn and then it cuts it quietly what can

00:56

possibly go wrong then you keep reading nothing in the company literature is [lawn mower goes over lawn gnome]

00:59

tipping you off that anything could be amiss here solar power and it works in

01:04

the rain cuts in length grass lemon-scented odd well you go to their

01:09

website to check out how easy the product is to buy and hey as part of

01:12

your own due diligence you're gonna buy one you think your company will likely

01:16

reimburse you the three hundred ninety nine dollars you're spending here but

01:19

even if they don't really you don't care you want your parents to have one of

01:23

these bad boys you know a Kwanza shopping for next year [woman gifts mower to parents]

01:26

done you order and keep looking finding nothing wrong than you think ah gardener

01:32

unions they must hate this the unions would rally and destroy the company but

01:36

then you realize that gardeners don't have unions you didn't grow up wealthy

01:40

enough to have a gardener but you actually did have one it was you anyway

01:44

no union risk okay so it's time to do more lawn mower digging well the balance

01:49

sheet looks benign there's fifty million bucks of cash and 25 million of debt [writing on white board]

01:53

that looks like it's mostly factored receivables

01:56

waiting to be collected you figure that twenty-five million dollars just got the

01:59

company quicker access to working capital so that they could build more [mower production line]

02:03

Robo waters interesting name you think and a light goes off in your head

02:07

there's this website you just remembered that's really helpful when you're

02:10

researching what's it called again what's it called again

02:13

oh yeah Google yeah you smack your head for not doing this sooner you sigh ah as

02:18

all the air rushes out of your tires when you google the name then click the

02:23

Images tab so famous for helping young people find them you know art film [googling]

02:28

images instead of lawns newly cropped with bored gardeners with their boots up

02:33

on a bench you get tons of bloody gory images ad supported by law firms asking

02:39

to represent the victims one man labels his sawn in half foot defeated in

02:45

another that runs a YouTube video showing what appears to be the robe of

02:48

honour mowing down old people in an assisted living facility read a bit [youtube video]

02:52

further and there are actually thousands of lawsuits against the company for

02:56

faulty advertising a product that doesn't work in a class action in ray

03:01

missing toes and cat murder but part of your job here is to fix broken companies

03:06

after buying them cheap turn them around and then resell a shiny new fixed

03:10

company to the public the problem here is that this really is a good idea

03:14

and again this company wasn't the only one on earth to think of it and as you

03:19

look further you find seven competitors who all do about the same thing only [roomba mows lawn too]

03:23

they don't have the brand equity destroying lawsuits that you know will

03:27

be played endlessly in the press for years you realize that there is no fix

03:31

for this company you could buy it cheap but it'll always be cheap and with so

03:36

much nuclear waste around it you'd find it almost impossible to get lenders to

03:40

lend you deal money on any terms that are remotely favorable so it's hard to

03:44

make a real living in this direction you move on with your lawn still in rough [paper thrown into trash]

03:48

shape but fortunately all of your rooms impact [mower chases old man]