Tuesday, May 28, 2013

Is Canonical Ltd. Financially Insolvent?

by Dietrich Schmitz

I've put it out there.  I am not one of Mark Shuttleworth's blind devotees and have moved away from Canonical and Ubuntu a good while ago.  I think he is running a business into the ground.  And I think it's only a matter of time before we see a public statement that would confirm Canonical's tenuous financial condition.

Today, I was looking around for financial information of any kind regarding Canonical Ltd. and stumbled across this page. (Image credit: accountancyage.com)

It would appear that, at the time of reporting (December 2012), Canonical Ltd. was insolvent.  That is an accounting term which describes a company that has more debt than assets, meaning, they cannot pay off those debts.

Take a look at this graphic from the above-referenced website page and you do the math:

Graphic showing Canonical Ltd. Liabilities and Assets

Edit--One unnamed respondent to my share of the story on G+ made this interesting comment:

"Well, their net assets are -$12millionGBP, but they have $10millionGBP. Also, I'm not familiar with English accounting, but not all nations include cash in the gross and net assets. So, depending on English accounting standards they may still be $7millionGBP from being insolvent.

Either way, their cost of sales are small when considering their deficit in operating costs. These number show poor administrative decision making and if it isn't insolvent now, it will be before the year is over without a drastic change in direction."

Me: I would add that cash assets are included in current assets reported.

Of course, we're not seeing the whole picture, namely a balance sheet and P&L statement.  But I think this paints a picture of a company woefully in debt and although showing cash assets, Mr. Shuttleworth must be putting more IOUs into his company than he ever imagined he'd be doing.

At what point will he stop putting IOUs into Canonical Ltd.?  That is the question.

The lending cannot go on forever as even his personal financial resources have limits.

I thought I would share this discovery with you.  Interesting yes?

Read Moving Sideways and Where Will Your Distro Be in Five Years? if you haven't already done so.

Thanks.  -- Dietrich

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