Big Business and it's "profitability"

I'm not stupid (laughter hits my ears) and I know a bit about the world. BUT

Here in the UK, one of the biggest construction firms, Carillion is on the verge of collapse. Part of it's problem (say wise commentators) is that it has debts of £1bn and owes it's workers' pension fund another £05bn.

Then I read that Guitar centre is in similar position though iot's debts are only about $1bn (£0.8bn).

So here's my puzzlement. How come banks (folks I have never seen as trhe brightest coins on the block) are willing to lend billions to big busineess but not lend a few hundred to sound, well employed, good character individuals.

And how in God's name can these companies have been said to be profitable when they were simply piling up debt.
And how did these companies pay shareholders dividends? By BORROWING it from stupid bankers.

Answers on a postcard to John Milton Keynes.

PS. Orioginally, I misspelled "puzzlement" (above). The spellcheck offered me "Embezzlement" instead. :)
 
Cash flow, accounts receivable (you can borrow against money owed to you) and banks like the fact that customers will borrow from them, so they make money. 60 days same as cash, 12 months financing, etc.

But if you have a healthy cash flow, good accounts receivable and the company shows they can maintain that, banks will lend to them. All banks care about is can the company service their debt to them.
 
For years Ive been amazed at the semi's dumping off stuff at GC and the massive amounts of expansion they seem to have. In the Dallas area I have 11 stores in a 100 mile radius. Is it like that everywhere?
Are they trying to be like Wal Mart and have a store in every neighborhood, I wonder?
Are there that many people buying guitars and amps and drums and mic's to have 11 stores in 100 miles?
How much gear are people buying? I know there are the types that have like 30 guitars and 40 amps and want more....
but dont most "normal people" (jus kiddin) have one guitar and one amp?
its strange to me.

I think theres 6.7 million in this area D/FW so I assume this is a average sized city. ..but 11 stores in a 100 mile radius?:eek:

Almost half of Guitar Center’s $1.3 billion of outstanding debt is due within two years. A downgrade might be forestalled if the chain shows some momentum on revenue and earnings, Moody’s said.
 
Cash flow, accounts receivable (you can borrow against money owed to you) and banks like the fact that customers will borrow from them, so they make money. 60 days same as cash, 12 months financing, etc.

But if you have a healthy cash flow, good accounts receivable and the company shows they can maintain that, banks will lend to them. All banks care about is can the company service their debt to them.

This.

And let's not forget that debt (what others owe you, as oppose to what you owe others) is an asset! Debt increases the worth of your company and can improve your credit rating, which means that you can borrow for less. You can't really blame the banks alone. They play to the rules of the paper economy, and they don't control the credit rating agencies (the Big Three), as far as I know.

Even when they saw the subprime lending crash making its way round the world, banks were still buying up toxic assets, not because they were stupid, but because the banking system didn't sufficiently differentiate toxic from non-toxic assets. Using various financial instruments, it was possible to easily shift risk from one party to another, and launder your own assets. The party that ultimately gets shafted is your "sound, well employed, good character individuals", as Coquet-Shack has called them. But, then again, these "sound, well employed, good character individuals" were not complaining about these "casino" banks in the boom years, when they were spinning money out of nothing.
 
I was once advised by a business friend that if you go to the bank to borrow $20,000, it's a harder process than if you go to the bank for $4Million.

Of course when the $4M loan goes belly up, the people with the $20,000 loan pay for it with increased interest rates and fees.

Alan.
 
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