Is Ryland in Trouble?
Inventory of houses started and unsold declined to 823 units at December 31, 2007, denoting a decrease of 52.8 percent from December 31, 2006.
At December 31, 2007, the dollar value of the Company’s backlog was $786.4 million, reflecting a decline of 39.2 percent from December 31, 2006.
Cash balance of $243.6 million as of December 31, 2007
Accounts payables and Accrued Liabilities exceeded $500 million dollars.
Let's think about this for a second, Ryland probably has to spend a few hundred million to complete the above homes. If they sold them all in one quarter, they could probably raise about $1 billion dollars after selling expenses and net discounting and no vertical inventory left to sell. After paying off construction costs and payables, RYL would be left with about $400 milion in cash and about $1 billion of land and $839 million of debt.
Here is where the problem comes in......................what is the real market value of RYL's land? Recently we are seeing $0.30-$0.40 on the dollar of reported value on land sales. Even if we applied the high end of the range, RYL's land and cash would about equal its debt in the above scenario.
With homes sales and margins under continued pressure, what do you think next quarter's numbers are going to look like?