Short · Money
How did $5 billion of debt sink Toys “R” Us?
Toys “R” Us earned about $800M a year before interest and still went bankrupt: the 2005 buyout put a $5B loan on the company, interest took $450M a year and upkeep $250M more. Drop sales 10% and profit halves while the interest doesn't move, so the cash runs out.
Opens Buyout Lab. Change the same thing yourself.
Transcript
Toys R Us earned eight hundred million dollars a year before interest. It went bankrupt anyway. Why? In two thousand five, buyers paid six point six billion for it, mostly borrowed. Then they put that loan on the company. Every year, interest took four hundred and fifty million. Keeping the stores fresh took two hundred and fifty more. That left almost nothing. Now drop sales by ten percent. Profit halves, but the interest doesn't move. The cash runs out, and the lenders take over. Move the debt yourself at Explainer Tools dot com.
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Learn more about the buyout
This model replays the company’s own figures. The guide adds what a leveraged buyout is, what really happened in 2017 and 2018, and where the model stops.
- Topic guideHow did $5 billion of debt sink Toys “R” Us?The 2005 buyout, the interest bill, the 10% dip and the bankruptcy, with the company’s filings.
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