Voucher Company has changed name

DullGreyGuy

Arunmor said:

They look like they are three quarters of a million in the hole.

Not an accountant here but from a balance sheet perspective if someone buys a £100 voucher in principle on day 1 they get a c£100 asset of cash (less card fees) in the bank but a c£100 liability of having to payout the voucher value. In a big organisation they £100 face value would cost them less than £100 but suspect this was a more low key operation. 

Obviously advertising, staff etc continues to erode the asset but the liability sits there... other than the voucher expires after 12 months so if it remains uncashed at 12 months and 1 day the liability disappears. Even before then they could potentially start writing it down if they have sufficient evidence of spending patterns. 

They certainly have a very negative balance sheet but have had for some time and it's improved in recent years. Ignoring customers requests to cash in the vouchers isn't a legitimate mechanism for making a profit but will unwind some of the liabilities. 

There are certain parallels with insurance, when you buy a policy and pay £365 the insurer has to log a £364 liability for unearned premium as they've cash in the bank but not performed the duty to consider it theirs. Short of bad cat events their most profitable time is after they stop writing insurance and are just unwinding their UEP and release the risk margin on the IBNR