working capital

Today’s Groupon: Sorta Insolvent

Technically, we should say as of June 30, 2011, as the company had $376 million in current assets and $680 million in current liabilities for a negative working capital of $304 million. In accounting terms that’s known as notveryfuckinggood. Henry Blodget doesn’t want to freak anyone out but if things continue as they have been, this could end up being a helluva problem:

Companies can operate with a working capital deficit as long as they have another source of cash to cover the bills as they come due. Right now, Groupon has this source of cash: rapidly growing Groupon sales. As long as Groupon sells enough new Groupons in one quarter to pay all the bills it racked up in the prior quarter, it will not need additional cash. But if the company’s growth stumbles, or if competitive pressure leads to Groupon’s gross profit margin getting squeezed, look out. Under those scenarios, the company may not be able to sell enough new Groupons to pay off its old bills, and then it will face a serious cash crunch.

S-1 [SEC]
Don’t Mean To Be Alarmist, But Groupon Is Running Low On Cash [BI via Gawker]