AssetCo An Analysis on a Crumbling Company

About the Company

AssetCo is an international fire and rescue services business that operates in the United Kingdom and the United Arab Emirates. The services provided by AssetCo are outsourced, including all fire and rescue services. The company makes use of outsourced personnel, training, and equipment, but partners with the London Fire Brigade in its long-term contract (AssetCo.com, 2010).

A key goal of AssetCo is to meet and advise government policy, industry standards, and risk related to fire and rescue. The company functions within the civil defense, armed forces, aviation, and oil and gas industries in the UK and the UAE (AssetCo.com, 2010).

Company History

AssetCo began its life as a leasing and asset management subsidiary of British Gas. It was built to benefit a 20-year operational asset management contract with LFEPA, London Fire and Emergency Planning Authority. In 2009, the company secured a 7-year contract to assist LFEPA through a firefighter reserve of nearly 700 employees. With this contract, the Ministry of Defense and the Green Goddess fleet were relieved of this duty (AssetCo.com, 2010).

By 2010, AssetCo began another contract in the length of three years and at £40 million in order to provide the UAE an outsourced firefighting service. This gave AssetCo the opportunity to be the first frontline emergency service to operate in another state (AssetCo.com, 2010).

III. Key Competitors

AssetCo is not the only company to operate in its field. In its history, it began as a leasing and asset management subsidiary, and its competition still focuses strongly in that field. The company has three main competitors: Arval PHH Holdings Ltd. Company, Deutsche Leasing Ltd., and Shire Leasing PLC.

Arval PHH Holdings Limited Company is one of Europe's most successful and leading fleet and fuel management companies. It's main purpose is to handle the purchase of fuel, accident management services, and car rentals. As a subsidiary of BNP Paribas, the company is able to provide small and large organizations nearly 700,000 vehicles (Yahoo Finance, 2011).

Deutsch Leasing Limited Company has a primary focus in the equipment leasing and financing services industry. It rents and leases industrial equipment, machinery, vehicles, computers, and office equipment. It is young, only being established in 2003, as a subsidiary of Deutsche Leasing AG, but has proven to be a leader in its field through creating new standards for its industry by penetrating the market of financing and after-sales support (Yahoo Finance, 2011).

Lastly, Shire Leasing PLC Company exerts its energy towards keeping clients well-equipped with financing for business equipment. The financing that Shire Leasing PLC provides is for those businesses seeking to rent or to buy the small and large equipment used for their business practices. The company is 21 years old, founded by John Worton and Martin Smith. The company has also implemented the use of the internet in order to give customers the opportunity for instant credit processing (Yahoo Finance, 2011).

IV. Recent Happenings with AssetCo.

In May 2011, AssetCo experienced a CFO resigning, in which Scott Brown's leaving was immediately in effect. Before this, CEO John Shannon was forced out of the company. This is one significant cause of the dramatic drop in AssetCo's share price, as the prices took a deep nosedive soon after. In the article discussing Brown's leaving, the morale of the left-behind company was obvious. Brown had left without an immediate replacement, which caused an unnamed interim manager to handle his immediate duties, while interim chairman Tudor Davies was responsible for the rest of the duties. When questioned why Brown left, one analyst stated, "Wouldn't you?" Though the reasons behind Brown's departure are not public, it gave insight into what is left of the morale of the company (LeasingWorld.co.uk, 2011).

In March of 2011, AssetCo had already spent one quarter of the new year struggling...

At this time, it was able to raise £16 million in discounted share placing, but used it mainly as a way to pay off a number of pressuring creditors. Not long after, CEO Shannon and CFO Flynn denied a commitment to back a resolution to approve share placing, and claimed alleged unpaid debts. This ultimately led to Shannon's termination. This was a clear indication that the issues that AssetCo had were related to the borrowing of cash; a debt the company had to others that it was unable to repay (LeasingWorld.co.uk, 2011).
In May 2011, the company publicly claimed that it was aware of what its main problem was: It's capital repayment profile did not match their long-term plan for their contracts (Brickell, 2011). The cash that was generated was able to meet the company's interest cost requirements, but the funds were not able to met their repayment of capital needs. As a result, the company begged its banks for more funding. Their request was unheard, as Northern Bank of Belfast forced a creditors' petition in regards to the £1.3 million owed by AssetCo (Brickell, 2011).

V. Financial Analysis

AssetCo has seen a lot of difficulty over the last year since its announcement of financial trouble and the turnover of its CEO. In November 8, 2010, AssetCo came to a close at 53,620. On September 5, 2011, the close was at 1,720. The company has seen a 53-week high of 66.50, with a low of 0.83, with its last trade on September 9, 2011 (London South East, 2011).

The company has a debt to equity ratio of 1.43, symbolizing that it had nearly one and a half times the debt than it had equity. A company's goal should be to keep this under 1.00, or the company will see, as AssetCo is currently seeing, that there will be financial trouble. Another indicator of trouble is that of its earnings per share, in which the number is -0.04. This means that there is a negative value to each of AssetCo's shares (London South East, 2011).

Profitability ratio analysis does not show much promise for AssetCo, as its return on assets averages about -0.01. The average return on equity for the stockholders is roughly -0.04. These two valuable ratios indicate that the profitability is negative, meaning that the value of the company is actually a loss to the company and to its investors (MSN Money, 2011).

VI. Industry Analysis

The company growth rates, as compared to those in its industry, are far more elite. On a year-to-year review, AssetCo averaged a sales growth rate of 32.80%, while the industry averaged 21.00%. AssetCo was able to triple the industry in income growth rate at 443.60%, as to the industry standard of 125.50%. The company's earnings per share averaged 374.10%, while the industry standard sat at 121.90% (MSN Money, 2011).

On a five-year average basis, the company's sales percentage almost doubled to 63.05%, while the industry average dropped to 13.38%. It's net income leveled out to 129.44%, but the industry standard dropped dramatically to 9.15%. The dividends were 8.45%, while the industry provided 5.96% to its investors (MSN Money, 2011).

One may question as to why a company so elite would ever be in such financial trouble, but one must consider the amount of growth that a company is having. If a company experiences too much growth, there is a higher chance of failure in the long run, as the company runs out of ways to exhaust its resources to continue large growth. While it is important for companies to grow fast, the quality and fiscal discipline can be ignored in the process (Welles, 2000).

VII. Company Strengths and Weaknesses

AssetCo obviously had some key business concepts figured out-it knew how to align with its networks and how to sign contracts. It knew how to please its investors-for a while. However, the company made some large mistakes that significantly cost it's survival.

The company started to crumble when it went through a balance sheet reorganization, and the situation worsened when problems in discussing further funding emerged. The situation deteriorated…