Role c: The Managing Director of Danegelt

Your investors must be patient. The amount of traffic using your bridge is higher than anticipated, and increasing daily. Money from tolls will probably cover your costs from the middle of next year. The only reason for your present financial difficulties is the fact that delays in building (the bridge was opened eighteen months late) caused the interest to be repaid on debts to be greater than current income. These problems are all behind you now. There is no need for panic.

If the banks allow you to suspend interest payments for as much as a year, everything will be all right. You are sure that in under two years the banks will be happy because you will be able to cover all costs of interest and loan repayments. And shareholders will be happy as income from tolls will increase, and the share price will rise fast.

Role d: The Chief Executive of the Sumitomo Bank

You are not a shareholder in Danegelt, but you are the largest lender of capital. You are very unhappy about the suspension of repayments to your bank. The best solution both for your bank and everyone concerned would be for Danegelt to go into receivership. You are very interested in buying the company. Initially, of course, you would lose all, or most, of the money you have lent Danegelt.

But then the price you would pay to buy the bankrupt company would be so low, compared to the value of the assets (the bridge) and the income from them (the tolls), that you would quickly recoup your losses. Argue forcibly for Danegelt to go into receivership, but don’t say too much about your wish to buy the company.

Role e: The Secretary of the Federation of Small Shareholders

The way small shareholders have been treated by the banks and by Danegelt is scandalous. You invested 50 Danish crowns per share in the project and now the shares are only worth 3.50 crowns. If the company goes into receivership, you will probably only receive 1 crown per share. You refuse this solution, and you refuse to invest any more in a share issue which would simply result in the share price dropping even further.

There is only one solution. This is for the banks, many of whom bought their shares after the initial issue at a much lower price, to take over the company completely by buying all the shares at their issue price of 50 crowns.

Role f: The Financial Director of Danegelt

As far as you are concerned, Danegelt is bankrupt. You didn’t decide to suspend repayments to the banks: you were obliged to suspend repayments. There is no money left. It is all very well saying the bridge is profitable. It could be if it was managed better, and if it wasn’t so heavily in debt.

There is only one way out – call in the receiver, and sell the company off. And to guarantee competent management in future, you yourself should be appointed as the chief executive of the new firm.

Role g: The President of the Trust Bank of New York

It is not possible for your bank to lend any more money to Danegelt, and you cannot accept that the company will continue to suspend its repayments. You are losing a lot of money in this business, especially as you have given loans to Danegelt and you are a shareholder. The very worst solution from your point of view is receivership. You refuse even to consider it.

What you want is a new share issue at, say, 5 crowns a share. This would give Danegelt more capital to help it through its present difficulties. Once these difficulties are over, the share price will certainly rise. This will give you a return on your investment. This is a long-term strategy that you are proposing, but it is, to your mind, the only feasible option.

Framework 1: Profit and loss account

1. Prepare.

1. Put the words in the box into three groups with the same meaning.

turnover profit reserves earnings revenue sales retained profit

1.

2.

3.

2. Write the word amortization or depreciation next to the correct definitions. One word is used twice.

1. the gradual loss in value of an intangible asset (like patents or goodwill) _______________________________________

2. the gradual loss in value of a fixed asset (like a building or a vehicle) _______________________________________

3. the gradual payment of a fixed asset or repayment of a loan _______________________________________

3. Study the profit and loss (P&L) account items below. Is a P&L account in your company presented in the same way?

Revenue - Cost of goods sold (purchase of materials and parts, manufacturing costs etc.)

= Gross profit - Operating expenses (salaries, rent, administration, selling and marketing expenses, utilities, R&D etc.)

= Operating profit + Profit from investments +/- Exceptional items (one-time items e.g. the sale of an asset)

= Earnings before interest, tax, depreciation and amortization (EBITDA) - Depreciation - Amortization

= Earnings before interest and tax (EBIT) +/- Interest (received from bank for cash balances or paid to bank for loans)

= Pre-tax earnings (= Profit before tax) - Tax (paid to the government)

= Net earnings (= Profit after tax) - Dividends (paid to shareholders)

= Retained profit