I am reading through Robbie Burns’s book Naked Trader. Starting on page 221, he discusses Homebuy’s results from June 2006.
Profits were up 343%, and the chairman said that they were making “excellent progress”. However, net debt increased to £78m, which was actually above their banking facilities of £75m. With profits of £12m, they did not meet Burns’s cap of net debt at three times profit before tax.
A few days after that, the chairman bought £60k worth of shares, and the deputy chairman bought £231k.
A few days after that, the shares were suspended pending “discussions concerning further funding arrangements”. Homebuy subsequently went bust, and shareholders lost everything.
Burns says: “If they’d [investors] looked at the debt, they would never have bought”.