Lucent Technologies Case
The financial statement for Lucent Technologies is for September 30, 2003 and 2004. After reviewing the balance sheet I could determine Lucent Technologies Total Assets had increased by 1,052 million. This shows Total assets are in an upward trend and the company has steadily built assets the last year and not decreased them. The company’s goal is to raise profits and one way of raising profits is to increase their assets. Total Liabilities have decreased by 940 million. Total current liabilities have decreased over the year while long term liabilities have increased.
In 2003, Lucent Technologies debt to asset ratio was . 83 and in 2004 the debt to asset ratio was . 92 which means . 92 of Lucent Technologies assets were paid for by borrowing money. What this shows is Lucent Technologies may pay a higher interest on money borrowed because their debt to asset ratio is so high. By reducing their debt load and controlling purchases the company can reduce their total debt to asset ratio. Companies acquiring too much debt may have trouble paying creditors which could force them into bankruptcy. Total shareowners’ deficit has decreased over the year.
While the company is currently looking at a deficit, they are heading in an upward trend where shareholders could start receiving dividend payouts. Investors reviewing Lucent Technologies current balance sheet may have a hard time investing in the company as much of the assets owned by the company were purchased on credit. Creditors may loan Lucent Technologies money for future investments, but it would be at a higher interest rate as the current debt to asset ratio is high. Another problem creditors and investors may have with the current balance sheet is that Lucent Technologies is only providing them with information from one year.
Even though the balance sheet reflects improvements in company profits over the past year it doesn’t provide creditors and investors with enough information to make an informed decision. Creditors and investors would need financial statements for multiple years before investing in the company. By viewing the statement of cash flows, investors are able to determine how much cash comes in and goes out of the company during the year. It shows investors how the company is able to pay for its operations and future growth. Lucent Technologies provided a balance sheet for September 30, 2003 and 2004.
There is limited value in the data provided by Lucent Technologies, for investors and creditors to make informative decisions before investing in or leading money to this company. Other financial statements investors and creditors need to view are the income statement and the statement of cash flows. The income statement provides the revenue earned minus expenses incurred over a specific period of time. Investors need to view the statement of cash flow to determine the increases and decreases in cash made by Lucent Technologies.