Lucent Technologies Case ACC 230 2013

Lucent Technologies Case

Lucent Technologies is comprised of three sections, Integrated Network Solutions (INS), Mobility Solutions, and Lucent Worldwide Services. INS provides software and wireline data, network management, and optical networking (Fraser, 2007). Mobility Solutions provides software and wireless equipment to support radio access and core networks (Fraser, 2007. pg 79 para 3). Lucent Worldwide Services provides deployment, maintenance and management service in support of all product offerings (Fraser, 2007). After reviewing the balance sheet for the years of 2003 and 2004 it does not appear the Lucent Technologies improved their financial standing. The current assets were 49.4.5 of the total assets that year. In 2004, current assets were 48.5% of the total assets that year. Cash and cash equivalents decreased nearly 20% in 2005. Inventory increased substantially in 2004. A large increase in inventories in 2004 makes one question if sales are not up to par. Accounts receivables are down in 2004 also and this means less is being billed out. The balance sheet does not indicate any of the sales activity for the two years. One would need the sales figures to understand why the inventories increased and why receivables are down. Debt is less in 2004 compared to the debt in 2003. Current liabilities in 2003 were 25.6% and it did decrease to 24.3% in 2004. Total liabilities in 2003 were 23% and increased in 2004 to 26.4%. Long-term debt increased in 2004. This could be the result of refinancing of short-term debt from the previous year. At this time, I do not think it is wise to incur additional debt. Refinancing of debt is wise to do if the benefits far outweigh the negatives. When a company completes any type of refinancing, the refinancing needs to be advantageous to the company when the company does not appear to have financial stability. After reviewing the Lucent Technologies balance sheet, creditors and investors should be aware of the fact the cash and cash equivalents decreased, but the total assets increased. Creditor

and investors should also be aware of the fact that total liabilities decreased. One fact that makes me personally leery is the goodwill and other acquired intangibles increased substantially. Intangibles are not of monetary value. Intangibles cannot be touched. The increase in intangibles makes one question if the company has become wasteful and has lost opportunities to stabilize. Upon completing the review, it is my conclusion that it is not wise as a creditor or an investor to commit in Lucent Technologies at this time. An explanation as to why inventories have increased substantially over the year is needed. An explanation as to why receivables have decreased over the year is needed. If both answers have to do with sales being off, this is not a viable company. A company cannot pay debt if it does not have the sales volume to sustain itself. The companys statement regarding the deterioration of the market may be alarming to a creditor or an investor. The company even stated their limited ability to have access to capital. That statement should set-off a red flag to any creditor and investor. Sales need an explanation to a creditor and an investor. An explanation as how the company plans to tackle the selling of their product in the world market may enlighten the creditors and investors. A creditor needs to make certain that their debt will be paid over the term of the loan. An investor needs to make certain that their investment will gain over the years. Further investigation is required to gain a complete financial picture of Lucent Technologies.

References Fraser, L. M. & Ormiston, A. (2007). Understanding financial statements (8th ed.). Upper Saddle River, NJ: Pearson/Prentice.Hall