a. Compare the 2007 annual report for ACE Aviation and the 2007 annual report for Nortel Networks Corporation. Explain the similarities and differences in how the 2007 assets have been financed between these two companies. Also comment on the productivity of the assets during 2007 for each of the two companies. In your explanations and analysis, include comparisons to the prior fiscal year (i.e., 2006) where applicable. The written explanation should be limited to one typed page, with any supporting calculations presented in appendices and/or exhibits.
b. Based on your analysis in (a), which company's financing arrangement do you prefer, and why?
Note: Include all supporting calculations.
PLEASE CLICK ON THE FOLLOWING LINKS TO ACCESS THE ANNUAL REPORTS:
ACE AVIATION 2007 ANNUAL REPORT:
NORTEL NETWORKS CORPORATION 2007 ANNUAL REPORT:
Please see attached files for answers.
Both ACE Aviation, Inc. and Nortel Networks Corporation have very high degree of leverage. This means that their assets are mostly financed by debt. For Nortel 79% of its assets were financed by debt in 2007 while it was 95% for ACE. Meanwhile, a year before that, the financing was 90% and 112% for Nortel and ACE, respectively. This is not surprising since both companies are involved in very capital intensive industries which provide services - transportation (ACE) and communications (Nortel).
Moreover, both companies appear not to be utilizing their total assets efficiently in generating sales. In the case of Nortel, for 2007 it was only able to generate US $0.64 for every dollar of asset though it was a slight improvement from US $0.60 in 2006. For ACE, it was able to generate Canadian $0.79 for every dollar of sales in 2007 and 2006. This is much better than Nortel, but it is still inefficient as both companies haven't broken the 'buck' yet in terms of asset ...
The expert examines an annual report comparison for ACE Aviation and Nortel Networks.