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No guarantee of V-shaped recovery

TOKYO -- Toshiba needs a new, stable source of earnings and a strategy for growth to return to profitability quickly after its gut-wrenching restructuring. It must also see to restoring badly damaged financial health.

     The Japanese company's finances -- perhaps its greatest vulnerability -- already stack up poorly against those of domestic peers like Hitachi and Mitsubishi Electric. And they will get worse before they get better. With a huge net loss on the way, shareholders' equity is poised to drop 60% year on year to 430 billion yen ($3.55 billion) at the close of fiscal 2015 next March, sending the equity ratio into the single digits. By this measure, Toshiba will have sunk as low as Sharp, another money-losing electronics group in the midst of retrenchment.

     Losses at the operating level will hit cash flow, which came in at 330 billion yen last fiscal year. This leaves less money to plow back into its business. Toshiba needs to make several hundred billion yen of investments each year in the fast-evolving field of memory and other storage devices alone. If it skimps on capital spending for lack of funds, Toshiba may find itself trapped in a vicious cycle of earnings declines.

     Asset sales, including the divestment of its stake in measuring devices maker Topcon, will generate 200 billion yen in income this fiscal year. But raising capital through public securities offerings is less easy now that Toshiba has landed on the Tokyo Stock Exchange's watchlist owing to its accounting scandal. Chief Financial Officer Masayoshi Hirata says the manufacturer will seek aid from its mainstay creditors.

     Toshiba shares fell by as much as 10% to a three-year low here Monday. Unless it can succeed in restructuring, solidify its finances and chart a course to growth, investor confidence will not return quickly either.

(Nikkei)

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