Trx Inc Company Case Analysis

TRX Case Home Assignment #3

                                                                                           ——Analysis by CNCA

                                                                                                       Members:

                                                                                                              Hang Su,     Xianliang Liang

                                                                                                              Zihao Ju,     Ruiqian Yan

                                                                                                              Shiyu Meng,   Xiaoliang Gu  

Through the case, we have learned that the company had set a IPO plan in 2000. However, the economy went down because of dot-com collapse happened at the beginning of 21st Centry, and TRX had decided to keep its IPO plan in schedule.

TRX is a high-technology company which provide the data and the data analysis for tourists,  travel agencies, hotels and transportation companies. It collected the seasonal flow of tourists between North America and Europe, then the travel agencies can make their plans in booking hotels and airlines.

In the past 5 years, TRX tried its best in expanding the company and earning more profits from the market. Its main revenue came from three parts: transaction processing, data integration and customer care. However the travel industry did not go very well after September 11th, 2001. Terrorist attack happened frequently all over the world such as London and Marid in 2004. And the oil price reach $55 per barrel in 2005 which was two times as in 2001. The cost of operating increased and the revenue decreased which were affected by the external reasons. Davis, who was the CEO of TRX,  had decide to raise TRX’s capital to help the company to overcome that bad situation. However raising capital need more financial support and the company did not have enough money. Thus, TRX had three options at that time: (1) offering IPO; (2) a private placement of equity; (3) borrowing more debt.

Comparing with Exhibit 2 and Exhibit 3 the total expense were $76,135,000 in 2003 and $122,313,000 in 2004 but the revenue just increased from $74,510,000 in 2003 to $ 113,459,000 in 2004. The revenue were lower than the expense, and the company faced to a income deficit. Through exhibit, we have found that the long term debt of TRX had increased from $26,180,000 to $49,165,000 between 2003 and 2004. As the quantity of debt went up in this period, the D/E ratio increased from 1.45 to 2.86 which means that the company’s debt leverage increased and it became more risky. Thus if  TRX insisted to borrow debt, the company would face to bankruptcy in the future. And Davis wanted the company to become more independence, so a private placement of equity might not be a good choice for TRX. Because if they sell their equities to the institutions or the banks, they would lose the control of the company. Therefore going public would be the best option for TRX.

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