Wednesday, September 23, 2015

AKA, 'Accounts Receivable'

Donald Trump, business genius, artist of The Deal, hasn't heard of a commonplace practice sometimes known as vendor financing?
Lucent and its major competitors all started goosing sales by lending money to their customers. In a neat bit of accounting magic, money from the loans began to appear on Lucent’s income statement as new revenue while the dicey debt got stashed on its balance sheet as an allegedly solid asset. It was nothing of the sort. Lucent said in its SEC filings that it had little choice to play the so-called vendor financing game, because all its competitors were too.
 As did Lucent's non-competitors in unrelated businesses. Say, the retail sector. Does authoress Claire Zillman not have a Nordstrom credit card? Or, a Macy's, a Bloomingdale's...a Target card? All of them (vendors) finance their customers' purchases by offering credit. As do oil companies (Chevron, Shell, BP, Texaco issue credit cards).

In the business to business sector--in which Lucent was engaged--it's called 'receivables' and shows up as an asset on the balance sheet.. There's no neat bit of accounting magic about it. It's humdrum business activity, and any investment analyst who doesn't know about it ought to be, in words The Donald should understand, fired...for incompetence.

And Carly Fiorina was not CF[inancial]O at Lucent anyway. Nor CEO. It isn't clear that she, while at Lucent (she left that company in 1999) had anything to say about its credit policies. Nor is there any evidence being presented as to how large Lucent's receivables were as a percentage of its sales.

Not that we would want to confuse Mr. Trump or Fortune with the facts.

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