Summary:
The article reported by CBC News mentions that Google has been selected to make the first bid for Nortel's entire portfolio of patents after the bankruptcy of Nortel Networks Corp. Google has bid $900 million to buy 6000 patents held by Nortel. The first bid made by Google sets the lower limits for the auction, and it prevents the bids going too low. The portfolio of patents covers most aspects of telecommunication. Therefore, lots of other companies, such as waterloo, Ont.-based Research In Motion, BlackBerry, and IBM, are interested in buying the patents. The patents are expected to fetch $1.4 billion.US. In addition, Duncan Stewart, director of research for technology at Deloitte, expresses his feeling of sadness to all Canadian, and he hopes the technologists who developed those patented technologies will continue on innovating in Canada.
Connection:
The connection to Chapter 5 would be the three types of activities on the cash flow statement. In this case, we focus on investing activities and financing activities. Investing activities typically involve balance sheet accounts classified as long-term assets. The portfolio of patents mentioned in the article is a form of intangible long-term assets. Assuming Google successfully buys the portfolio from Nortel for $900 million, this process is considered as investing activity. Moreover, another connection would be the effects of different transactions on the cash flow statement. The acquisition of the patents held by Nortel would result in an outflow of cash related to investing activities, so the cash used for investing in the fiscal year of 2011 would increase by $900 million. The whole process of purchasing the patents will reduce the total cash owned by the company, but it would potentially bring more cash flow in the future. If the purchase of the patents were successful, the company would need to obtain more money to stabilize the total amounts of cash owned by the company. Therefore, Google might need to issue more shares in order to get more cash, and this would result in an inflow of cash related to financing activities.
Reflection:
In my opinions, bidding for the entire portfolio of patents held by Nortel would be beneficial since the patents can boost up the company's capability to maximize its profit. Long-term investment such as the patents mentioned in this case would bring more opportunities to the company. Even though this kind of investment will result in an outflow of cash initially, it would eventually help the company to perform better. Moreover, I think Google should allocate more money to investing activities. Proper amounts of cash outflow for investing is beneficial to the company. However, if the outflow of cash for investing activities is too high, the overall performance of the company will be affected dramatically.
