Robbie Burns’s cautionary tale on directors purchase

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”.


About mcturra2000

Computer programmer living in Scotland.
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