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Stocks K / Koala Corporation

URL:  http://boards.fool.com/hi-seekm-glad-to-hear-from-you-of-course-i-15389732.aspx

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, http://www.fool.com/boringport/2000/boringport001016.htm , 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!

--steve-o
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