Railco

Case Prompt

Our client is RailCo a division of Diversco, Diversco is a diversified holding company with numerous businesses. Traditionally, RailCo has been the “Cash Cow” of the portfolio. They are a rail freight company.

• Sales in 2019 were $1 Billion and earnings were $50 million.
• However, in 2020, the firm swung from a $50 million profit to a $50 million loss due to the COVID-19 pandemic’s effect on the Market.
• Management took aggressive action to correct the problem and assured the Board that this was an anomaly and would not happen again.
• However, in the first two quarters of 2021, the company has lost $25 million.

Why is RailCo losing money? What should they do?

Additional Information:

• Railco carriers freight over rail to businesses. They are not a passenger railway.
• They own their tracks and do business regionally with little direct rail competition.
• The firm adopted new depreciation policy which lowered depreciation of assets slightly.