Toys R Us: the Leveraged Buyout That Sank It

In 2005, a private equity consortium took Toys R Us private and loaded it with roughly $5 billion in debt, a deal pitched as a turnaround away from public-market scrutiny. Already squeezed by Walmart and Target and watching a young Amazon circle, the company suddenly faced a future where nearly every dollar of free cash flow went to interest payments instead of stores, supply chains, or a website. By 2017 it filed for bankruptcy and liquidated.

This is a finance case disguised as a retail obituary, and it sharpens one of the most consequential calls a founder or operator makes: how much of tomorrow's cash flow to commit before you know what tomorrow demands. Debt is not the villain here, and the case is careful about when leverage is efficient versus fatal. The real question it puts in front of you is how much slack your own balance sheet would have if a serious threat showed up in the next twelve months.