It lacked cash to meet its maturing commercial paper obligations, and teetered on the edge of bankruptcy. The company and the industry made headlines every other day. It is not all that complex. To lenders, loans are assets. Some loans are unlikely to be repaid.
Expenses reduce net income.
Estimating the amount of bad loans may involve complex judgments, but the accounting is simple. With far fewer reported expenses, Mercury Finance reported far higher earnings. Just as detecting the buried discounts in Pearson's Accounts Receivable should not have been tricky, a bright red flag existed on Mercury Finance's financial statements. Maybe that account really included assets other than repossession rights. But the increase does seem peculiar, at least to a corporate lawyer with the accounting sense, and at least in hindsight.