What is happening to the debt position?

Nortel Networks engaged in several acquisitions in 1998. The effect on their income statement was staggering. Despite $17.575 billion in revenues (a $213 million increase from 1997), Nortel's net income before taxes was negative $537 million. ROE was negative 4.64% compared to the industry average of 13.8%.

Acquisitions, mergers, and partnerships have become a major strategy of many companies in the telecommunications industry. Nortel frequently participates in acquiring other companies in order to expand their business units, products, and lines. In 1998, Nortel's largest acquisition occurred when they acquired Bay Networks for an estimated US$9.1 billion.

In looking at the 1998 financials (I mention these because of the large dollar amount spent on acquisitions that year), Nortel's Debt/Equity ratio was interesting. Looking at the balance sheet, total liabilities increased by $1.1 billion (15%). The Statement of Cash Flows shows that Nortel repurchased approximately $1 billion of outstanding stock. Looking at these two numbers, one would expect the debt/equity ratio to increase but

What is happening to the stock value?

Nortel has 5 positive surprises. Especially the last three quarters. Raytheon on the other hand -- 3 quarters in a row of bad surprises.

Estimate EPS $0.13 $0.13 $0.22 $0.09 $0.14

Raytheon 06/1999 09/1999 12/1999 03/2000 06/2000

How can we all learn from your analysis?

An additional comment on beta. I think beta and risk sometimes are tied to closely together. The term I like to use when discussing beta is volatility. Nortel has increased 300% over the past year, but hindsight tells us that it was a much less risky stock then Raytheon, which is now trading at about one-third of the price it did a year ago.

Some common words found in the essay are:
Actual EPS, Nortel Networks, Cash Flow, Lockheed Martin, Bay Networks, Raytheon Potential, Wall Street, Electronics GM, Flows Nortel, Secondly Nortel, cash flow, net income, market cap, stock value, bay networks, industry average, operating earnings, book value, optic networking, market cap value, cap value, past revenue growth, 06/2000 estimate eps, raytheon heavily involved, income cash flow,
Approximate Word count = 1627
Approximate Pages = 7 (250 words per page double spaced)