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Stocks K / Koala Corporation


Subject:  Re: Liquidity Date:  7/17/2001  5:11 PM
Author:  koch Number:  186 of 197

Hi, seekM, glad to hear from you!

Of course, I cannot predict whether KARE will weather the storm. One way of putting it is that I am orders of magnitude more worried about KARE going bankrupt than I am about, say Yahoo. Yahoo has been having tough times recently...but they have $1.5 billion in cash to lean on.

In terms of the stock price, one thing to consider is that their debt is higher than their market cap. The following Fool article, , discusses calculating "Enterprise Value" for Apple Computer. Enterprise Value is a measure of how much investors a valuing future cash flows from operations.

In KARE's case:
$28.5 million market cap
$0 cash
$39.5 million debt

So, investors are actually valuing the enterprise at about $68 million = $28.5 + $39.5 million. (That is, the company OWES $39.5 million, so the business has to be worth even more to support a market cap of $28.5 million.) Without the debt, the stock price would be $9.9, if investors valued the same way. Does this make a difference in your comparison with $6?

Hope that helps!

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