Why and how do companies with high revenues go into administration?

Telejazzer

Telejazzer

So another established construction group with what seems to be in a good position goes into administration.

http://www.smartcompany.com.au/prop...nday_22_August_20118_19_2011&utm_medium=email

Would that be because they are in deep debt? current valuation doesn't stack up?

How did they get started in their current projects anyway?

I pressume they had initial financial backing. Did the financiers backed off from the projects?

I remember when Akron used to have projects that would have been the envy of the industry and was really surprised when they collapsed.

I'm basically just thinking out loud here and hopefully have a good coversation with the forumites. Speculative answers are encouraged.
 
There are many ways a company can go broke. main one is too much debt.

If a company expands and borrows money to grow, if the revenue doesnt keep up with debt and then they cant service the debt, seeya later. usually happens when the growth is too fast, it should be regulated so they ratios continue to be the same or similar.

Also, a lot of companies operate on slim margins, which can be dangerous in bad financial times, like now. If company's costs are 90% of its revenue, if that company goes through a tough time and the revenue drops below that 90%, theyre gone.
 
Revenue has nothing to do with profitability.

There are so many variables with building it's too hard to know without seeing the books.

I've known building companies in booms to go bust because they couldn't get the tradesmen to work on the job and the delays were costly with scaffolding hire eroding profit as it just sat for months on end doing nothing. Staff overheads stay the same but without turnover on site you're unable to pay the bills.

Others during a downturn aren't able to lower their overheads quickly enough to make adjustments and as turnover decreased and overheads remained constant they don't have enough of a float to operate.

I've seen others see a nice cash balance pull money out for other ventures without properly analysing their WIP which would have told them that money was due to overclaiming and therefore required for future construction.

In short, who knows - but it's tragic when good men go down, like Tony Trlin as an example. For whatever reason.
 
Having to pay the guy with a jackhammer 50 bucks an hour for start and to top it all off money aint cheap either. There is too much fat in this country nowadays.

Heck even new shopping centres arent viable anymore

Mr Beville, 67, from Darling Point got into financial trouble when the renovation budget for Top Ryde blew out and he was forced to borrow more money. When he had to repay the loans he was unable to pass on the higher costs to his tenants with rent rises
Click to expand...
http://www.smh.com.au/business/rece...-six-months-after-opening-20110217-1aybl.html
 
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