Wework was a rapidly growing company with an evaluation of 47 billion. In 2019, just before the company was scheduled for an IPO, WeWork went from an evaluation of 47 billion to near bankruptcy in a matter of weeks after the financial statements exposed to the public that WeWork was losing billions of dollars. CEO Adam Neumann was fired, he left with over 1.4 billion dollars.
WeWork was founded in 2010, they rented office spaces that were modern clean and pristine, a place where anyone would enjoy working. There was lots of excitement surrounding WeWork before the IPO. I wasn’t personally interested in WeWork although I wished that my office space was as pretty.
WeWork had been evaluated as a technology company instead of a real estate investment company.
Balance the Risk
It’s important to understand the workings of a business before you invest. Current assets should be twice the amount of current liabilities. As we all know, the stock market goes up and the stock market goes down, therefore everyday will not be sunshine and rainbows. The Oracle of Omaha Warren Buffett keeps an excess of cash available just in case of bad times.
Long term debt should not exceed working capital. In a perfect world there is no long term debt, but we don’t live in a perfect world, therefore make sure that LTD does not exceed working capital. Zero LTD is best.
Read annual reports and financial statements, review the plans for growing the company. See how much the CEO and executives are getting paid.
Visit website such as Yahoo Finance, Morningstar.com and Seeking Alpha. Seeking Alpha is a website with independent reviews written by different authors, there are many more available online.
We may never know if Wework will become a profitable company in the future, there are no guarantees when it comes to investing. It takes patience to research a company but it’s a process that must not be overlooked.
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