Originally Posted by
Snoopy
BP, I made a post in September on this topic, where I highlighted a dichotomy of two views on having 'lots of debts'. I find that I tend to think from the point of view of the consumer as a default position. A lender, like Turners, has an opposite viewpoint.
Since this is a 'Turners' thread, I think I should challenge your line that 'having lots of debt is good'. Certainly having lots of car loans on the Turners books is good. But car loans are 'financial receivables' and therefore 'assets' for Turners. These assets are funded by Turners bonds and bank debt. I would argue that the less of this debt that Turners have the better.
If you imagine an extreme case of Turners having no debt, and all Turners car loans funded by shareholders funds, then this is the lowest risk scenario for Turners going forwards. That is because there is zero chance that any debt will go sour in a market downturn if such debt doesn't exist.
If we go to the other extreme where Turners have 'lot's of debt', and a used car market going sour (some would argue that is where Turners is now) and the financial receivables shrink to below the value of the debt used to fund them, THEN the difference is must be made up from shareholders funds. That is bad news for shareholders.
Yet 'flip the coin' and you can argue that having lots of debt means you can have a bigger book of financial receivables (car loans) for which you can provide funding. So it seems having lots of debt being good or bad can come down to a market confidence issue. If the market is going well then having lots of debt could be good.
Having criticised you, I now have to turn the spotlight of criticism back on myself, and the conclusion to my above referenced post that I made back in September. An 'at risk liability' is in all probability a bank loan. So having more of those in proportion to your loan book (risk assets) is most likely a bad thing. And that means the loan book position at Turners was in a more risky state at EOFY2018 than a year previous to that. The opposite conclusion to the conclusion I made at the time!
SNOOPY