Evaluate the asset, debt, and equity structure of Lucent Technologies, as well as trends and changes found on the common-size balance sheet.
After reading case 2.1 about Lucent Technologies we see that their assets had a big decline from the years 2003 to 2004. The one thing that was good was that Lucent’s inventory holdings where able to rise during those years. In the case Lucent’s current assets of 2003 made up 49.4% of the company’s total assets. But as we see in 2004 the percentage of total assets went down to 48.5%. Another thing to look at is that the percentage of inventory went up; in 2003 it was at 4% where as in 2004 it went up to 4.8%. This made for a 20% increase in Lucent’s total inventory.
Lucent Technologies debt had a big drop between the years of 2003 and 2004. The current liability of Lucent went from 25.6% in 2003 to 24.3% in 2004. Lucent Technologies equity structure has enhanced from a shortage which represents negative points in their total liabilities and their shareholders equity in 2003 compared to the numbers in 2004.
What concerns would investors and creditors have based on only this information?
Some of the things that creditors and investors might be worried about would be that their cash and cash equivalents are decreasing and that their assets are steadily accelerating. Some also might think that it is important to know that Lucent technologies is in an extremely competitive sector. Another thing that the investors and creditors might be concerned about is that the demand is in a decline and the inventory is being elevated, this could mean that the overall carrying costs for the company will be very high. Also when these things are going on it could cause Lucent Technologies to have to impeded dramatic losses in their inventory over the next couple years.
What additional financial and nonfinancial information would investors and creditors need to make investing and lending decisions for...
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