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RadioShack AO Message Board

  • sync2l12 sync2l12 Nov 24, 2012 10:11 AM Flag

    Risks RadioShack Faces


    The risks are evident for any investor: Can the company survive and thrive, or will it continue its steady descent?

    Further revenue declines at RadioShack could signal to investors to head for the exits. As Best Buy moves to smaller-format stores, this traditional big box retailer could steal part of RadioShack's traditional territory. RadioShack's stockpile of cash would burn up, and less cash flow could crimp the company's ability to pay debts -- even the newly refinanced debt that is at an 11% interest rate. And unfortunately, ratings on the company's debt keep falling further into "junk" status, which will likely keep raising the interest rates RadioShack will pay for any loans.

    Profit margins will also be critical for investors to watch. The company dropped into negative profit-margin territory this year, which can only last for so long. Even if RadioShack can keep convincing customers to pay for its products and services, the company will still lose money from inefficiencies within the business and lower-margin products, no matter how much it brings in.

    The financial risk for RadioShack is clear; however, it also has a large management risk. If the company fails to find the right CEO to lead it to profitability and management, this new hire could be its last CEO.

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