Question

Should TRU have considered the bid offered by Issac Larian of MGA Entertainment? If TRU's CEO, Dave Brandon, is able to save TRU, where should his turnaround efforts be focused? What financial ratio(s) should he have improved and why?

Answer 1

Though Issac Larian's bid does not meet the qualified bid threshold under the court approved auction procedures, it is better to consider the bid, while evaluating other bids as well.

If Toys R Us (TRU) CEO Dave Brandon is able to save TRU, then his focus must be on following areas:

• Better management of its huge debts. As TRU had to spend $400 million a year to service its debt.
• Inventory management: TRU faced unexpected delays and disruption in product supplies, that too during holiday shopping season would be terrible.
• Managing competition from the rivals, especially from online and other big giants
• "Better employees make for happier customers". Efficient and well paid employees is to be a focus area.

Financial ratios to be improved would be, such as,

1. Liquidity ratio: determines the company's current availability of cash and other liquid assets
2. Leverage ratio, which determines to what extent the company is depended on borrowings.

TRU's financial issues were not sudden issues, rather the company faced the financial burden of billions of debt, way back in 2005, from which it could not recover really. And this stopped the company from making further necessary investments in stores, for upkeep and good condition stores, and paying employees. The unpleasant shopping experience for customers, quick delivery at lower prices from competitors and the untimely bankruptcy, altogether made TRU's condition even worse and brought to the verge of closure.