"Cash value" of GameStop

https://preview.redd.it/cxfmhgeli91g1.jpg?width=792&format=pjpg&auto=webp&s=2535873934238005b7b78cc8062529311efbd249

Its a bad look for us because how are outsiders supposed to believe anything we say, if we don't even understand assets & liabilities. Even worse when we're in the comments saying stuff like, "oh well, its 0%, who cares!" 🤔 Uh...accounting and reality cares, that's who. Lol.

Its very simple: Our assets - our liabilities = our equity (the true value of our company)

I'm using the numbers below from the post/screenshot above, which im pretty sure are slightly outdated because ive been seeing those numbers for weeks now (if not months).

1. GameStop has ~$9.6B in cash…but not all of that money is actually theirs.

2. About $2.7B of that cash is BORROWED. They got that money from selling convertible notes.

3. Borrowed money is NOT free money. It doesn't magically raise the valuation of our company. If you borrow $50 on top of your own $50, sure you have $100 in your wallet now, but you also owe that other $50 back. Yes, you know have $100 cash on hand. But your real value in you wallet is only a true $100 if you actually were given the $50 to keep. So realistically for accounting, your real wallet value is TECHNICALLY still only $50 since you OWE the other $50 back. Same idea here with the "0% interest free debt" gamestop has.

4. So you can’t count the $2.7B as “extra cash value” for shareholders/the company. It has to be paid back or turned into shares at some point.

5. If GameStop pays it back: No dilution. But the $2.7B now leaves the cash pile. So real cash (in present terms obviously, for this example) is $9.6B – $2.7B = $6.9B

6. Now, if it converts instead: No cash leaves, but, now shares go up (dilution). Cash per share goes down. So either way…

7. You cannot pretend the $2.7B debt is free money and just simply divide it by shares.

Heres an example pretending you are a small business owner. For the sake of avoiding arguing semantics, yes I know this analogy below isnt 100% the same as the long term convertible notes Gamestop has, but the core principle is the same for the sake of the analogy:

So imagine as a small business owner you have $70,000 of cash saved up in your business bank account. That’s real cash your business actually owns. Then you get approved for a temporary $30,000 line of credit that has no borrow fee (the "no borrow fee" isnt realistic lol, but the point here is to show how the borrowing doesn't change the real cash value of your company). So anyway yeah you borrow the full $30,000. Now your bank account shows $100,000 in cash on hand.

But even though your bank account shows $100,000, that does not make your business a “$100,000 cash value business.” You still owe the $30,000 back to the lender.

So the real cash value your business actually owns is still only $70,000, because $30,000 of the cash in the account is borrowed money. So it doesnt matter if its 0% interest or not.

Now...you can spend the $30,000 borrowed money however you want. You can invest it, hire employees, expand, upgrade equipment, grow the company, whatever. Literally irrelevant. Using that borrowed money might help your business, but none of that changes the simple math that the $30,000 is not part of your company's true cash value because you still owe it back. You dont ignore it on the balance sheet, no, but its not part of your income. Borrowed money is not income, so its not taxable, profit, or revenue...its an asset your company has to use, and its in the liabilities category because you're borrowing that money.

This is the same mistake we keep seeing in here regarding gamestop. People look at the total cash balance, which includes money the company received from selling convertible notes, and they treat every dollar as if it belongs to the company with no strings attached. But that 0% interest borrowed cash is the same (principle-wise) as the $30,000 in the above example. It’s money the company is temporarily using and it raises their cash on hand, yes, but they still owe the money back or need to convert.

So you can’t take the total cash, including the borrowed portion, and act like it all represents real value Gamestop accrued. And you also can’t divide that inflated total by the share count to claim an oversized “cash per share” number. You have to subtract any borrowed amount to get the true value that actually belongs to the company. The small business analogy hopefully helped this make more sense so we can stop seeing super incorrect numbers all the time.