Nortel Case Study

Nortel Case Study

Introduction

Nortel was a tremendously huge corporation. In the mid of the year 2000 the corporation was at its top most time of flourishment, with a huge amount of market capitalization. Nortel's share price went up like anything in a period of four years. But then analysts got to be really lazy in all their assessments that were happening during this time. High-priced acquirements were justified like the $3 billion purchase of Qtera, which was a firm which had zero profits and sales; and which botched to seriously examine accounting modifications which had impacts on profits.

Nortel's fall was also very swift and came from many fronts. Two years later from its year of success in August 2002, the figure went down to $5 billion. Lower than the untenable growth rate and earnings showed extremely accounting financial wrongdoing that had critically manipulated results for some time. The sudden rise and extreme fall after the year 2000 can be very well understood because of equity “over- valuation”.

Discussion

The Factors That Contributed To The Rise And Fall Of Nortel

Nortel was a tremendously huge corporation. As a huge company which worked with diversity it mainly highlighted on telecommunications. Employing a remarkable achievement strategy, Nortel expanded tremendously and even beyond the territory of North America. The outcome of which was that analysts appreciated what they thought to be a growth that was good enough for the R&D expenditures which were way above the earning expectations. Nortel's share price tripled in a four year time period. But then analysts got to be really lazy in all their assessments that were happening during this time. In the interim, government authorities wrapped the company with the Canadian flag as a representation of national monetary verve. In reality, almost everyone was looking into the Nortel supernova.

Nortel's fall was also very swift and came from many fronts. Two years later from its year of success in August 2002, the figure went down to $5 billion. Lower than the untenable growth rate and earnings showed extremely accounting financial wrongdoing that had critically manipulated results for some time.

The sudden rise and extreme downfall after the year 2000 can be eaily be comprehended because of equity “over- valuation”. This over valuation process occurs if there is a tremendous amount of deviation amidst the share price and fundamental value, when there is invisibility in fulfilling their expectations. The thought is that on one incidence over-valuation comes up, it works towards uncontrollable organizational developments. The end outcome of all is that the market turns out to create “agency” issues more stronger amidst managers and owners, instead of aggravating them. In particular, market fantasy shows value-demolishing managerial attitude. If expectations go way above and extremely high, then the management begins to take even bigger and more challenging risks, assuming that it may pay off. Unluckily, such kind of an attitude usually fails rather than being successful resulting in , disastrous outcomes.

Over-valuation was a truly a very big issue at Nortel which arose ...