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I'm not sure the article truly gets to the key points of why they went out of business. The travel industry in Europe is still growing, Brits are making more fo

I'm not sure the article truly gets to the key points of why they went out of business. The travel industry in Europe is still growing, Brits are making more foreign trips than ever before. The real problem was that the holidays they were selling weren't making Thomas Cook any profit. The holidays needed to be competitive against online travel agents with much lower wage costs. By booking with Thomas Cook, you could get an experience where there were more staff on hand to help you, but actually people didn't value this and hence weren't prepared to pay more. The real nail in the coffin for Thomas Cook was their huge liabilities and huge concerns about their business viability so of course they were paying huge amounts of interest. Lenders were only lending to them on the hopes that they could collect enough interest rather than repayment. They were hoping that other parties (such as governments) would make cash injections such that they could profit. Everyone knew that eventually the debt would catch up with them, no one would want to be left holding the bag and the company would collapse. The only reason Thomas Cook's balance sheet didn't look horrific was because they had assigned the brand a goodwill value of over £2.5 billion in 2018 which they wrote down to £1.4 billion after the first half of 2019. This was clearly a huge over-estimate as I doubt anyone will be paying much to purchase their brand now!

treis 7y ago
>assigned the brand a goodwill value of over £2.5 billion in 2018 which they wrote down to £1.4 billion after the first half of 2019. This was clearly a huge over-estimate as I doubt anyone will be paying much to purchase their brand now! That's not what Goodwill is. Goodwill goes on the balance sheet when you acquire a company for more than book value.
- usr1106 7y ago
  I am not familiar with the details of their business. But I assume they got the goodwill into their balance sheet by typical mismanagement: 1. Their markets are shrinking 2. Instead of shrinking company operations to adapt, they buy even less successful competitors for an overprice, so goodwill in the balance sheet 3. Not unsurprisingly integrating the not so successful competitor into the company is not so successful, employees are demotivated abd business suffers even more 4. Now a company with growing costs operating on a shrinking market gets even less profitable I don't claim healthily shrinking a company to adapt to a shrinking market is easy. But I'm sure it must be doable. Looks like business management largely fails in this discipline.
  - tim333 7y ago
    Mostly correct. They bought MyTravel and it did't work out https://www.reuters.com/article/us-mytravel-thomascook/thomas-cook-to-buy-rival-mytravel-idUSL1242804720070212 https://www.reuters.com/article/us-mytravel-thomascook/thoma...
  - treis 7y ago
    >But I assume they got the goodwill into their balance sheet by typical mismanagement: Virtually every company will have a market value greater than their book value. So any company that buys other companies will have goodwill on their balance sheet. Google, for example, has 18 billion dollars worth from all of their various acquisitions. Take a company like Nest for example. They had assets like patents, infrastructure, cash, accounts receivable, etc. If you add those all up and subtract their liabilities you get a book value of 100 million, as a totally made up number. Google comes along and buys them for 3.2 billion dollars. The transaction, from a book value perspective, has 3.2 billion in cash going out from Google and 100 million dollars of assets coming back. That looks like Google paid 3.2 billion for 100 million in assets, or in other words, just lost 3.1 billion dollars of value. To prevent that goodwill is added to the equation. The books have Google paying 3.2 billion dollars in cash for 100 million in assets and 3.1 billion in goodwill. Now Google paid 3.2 billion in cash for 3.2 billion in assets and it doesn't look like they lost value.

treis 7y ago

>assigned the brand a goodwill value of over £2.5 billion in 2018 which they wrote down to £1.4 billion after the first half of 2019. This was clearly a huge over-estimate as I doubt anyone will be paying much to purchase their brand now! That's not what Goodwill is. Goodwill goes on the balance sheet when you acquire a company for more than book value.

usr1106 7y ago
I am not familiar with the details of their business. But I assume they got the goodwill into their balance sheet by typical mismanagement: 1. Their markets are shrinking 2. Instead of shrinking company operations to adapt, they buy even less successful competitors for an overprice, so goodwill in the balance sheet 3. Not unsurprisingly integrating the not so successful competitor into the company is not so successful, employees are demotivated abd business suffers even more 4. Now a company with growing costs operating on a shrinking market gets even less profitable I don't claim healthily shrinking a company to adapt to a shrinking market is easy. But I'm sure it must be doable. Looks like business management largely fails in this discipline.
- tim333 7y ago
  Mostly correct. They bought MyTravel and it did't work out https://www.reuters.com/article/us-mytravel-thomascook/thomas-cook-to-buy-rival-mytravel-idUSL1242804720070212 https://www.reuters.com/article/us-mytravel-thomascook/thoma...
- treis 7y ago
  >But I assume they got the goodwill into their balance sheet by typical mismanagement: Virtually every company will have a market value greater than their book value. So any company that buys other companies will have goodwill on their balance sheet. Google, for example, has 18 billion dollars worth from all of their various acquisitions. Take a company like Nest for example. They had assets like patents, infrastructure, cash, accounts receivable, etc. If you add those all up and subtract their liabilities you get a book value of 100 million, as a totally made up number. Google comes along and buys them for 3.2 billion dollars. The transaction, from a book value perspective, has 3.2 billion in cash going out from Google and 100 million dollars of assets coming back. That looks like Google paid 3.2 billion for 100 million in assets, or in other words, just lost 3.1 billion dollars of value. To prevent that goodwill is added to the equation. The books have Google paying 3.2 billion dollars in cash for 100 million in assets and 3.1 billion in goodwill. Now Google paid 3.2 billion in cash for 3.2 billion in assets and it doesn't look like they lost value.