Running head: COMPREHENSIVE PROBLEM: SUN MICROSYSTEMS Comprehensive Problem: Sun Microsystems A complete analysis conducted on the financial statements and status of Sun Microsystems exposed key issues determined to be of great import to shareholders. After examining the research findings and analysis, it seems that Sun Microsystems finances have not maintained a steady incline. In fact, it had definitely experienced some highs and lows in its return on investment and stockholders’ equity over a four- year evaluation spanning the years 1998 through 2001. In an effort to decipher the problems within the company’s operations, data from the following reports and ratios offered considerable clues. To collect relevant data, the annual …show more content…
Table 3 Percent of net revenue 2000 2001 Net revenues $15,721 $18,250 Cost of sales $7,549 48.02% $10,041 55.02% Research and development 1,630 10.37 2,016 11.05 S, G, and A 4,072 25.90 4,544 24.90 Provision for income taxes 917 5.83 603 3.30 The main contributing factor to the decline in the return on stockholders’ equity (25.37% to 8.73%) was the decline in the profit margin (11.79% vs. 5.08%). The decrease in asset turnover (1.11 to 1.00) made a small contribution to the decline, as did the decline in the debt ratio (48.4% to 41.8%). Ratios for return on assets and return on equity offer support for the loss in stockholders’ equity. Return on assets went from 13.1 in 2000 to 5.1 in 2001 and return on equity dropped from 25.4 in 2000 to 8.7 in 2001. Return on equity represents return on assets divided by the difference of 1 and debts/assets. This supports the conclusion that cost of sales, a reflection of asset investment, is most responsible for the lackluster net income of 2001. The price/earnings (P/E) ratio further demonstrates the fluctuation in value to stockholders from 1998 to 2001. Table 4 P/E = Stock price/net income per common share-diluted (EPS) 1998 1999 2000 2001 P/E 46.9 54.0 51.8 35.2 The sharp decline in performance caused investors to pay a lower multiple for the stock. The lower P/E in 2001 suggests again that the return on stockholders’ investment is small for revenue generated in that year and stock prices will decline
The weekly performance of IBM stock presented a contestant growth. One highlight of the falling of stock price in the 6th week in the investment period was when IBM presented the 3rd quarter financial report. The investors weren’t satisfied with the profit report which they expected to be better especially when other IT companies were doing well in the 3rd quarter. One mistake I made was that I didn’t follow closely to the financial report of the company; therefore, I missed the peak of the stock price. From this experience, I learned that financial reports and current news are important indicators of the stock price. By following closely to the current event and analyzing the financial report, investors can maximize the profit and also become more familiar to the market.
Once again both companies have seen a reduction in this ratio over the past two years, meaning that the company were less effective in ’generating sales from [it’s] assets’. (Leopold, A et al, 1999, 249).
* The price earnings ratio has dropped by 5.510%, meaning that investors in 2009 were willing to pay slightly less per dollar of earnings than in 2008.
Costco 's assets-to-equity ratio has fallen slightly from 2.21 to 2.06. This means that for every dollar of invested capital Costco acquires $2.06 worth of assets in 2001 verses $2.21 worth of assets in 1997. This may indicate that less assets are being acquired. If less assets are acquired, less sales may be generated and if less sales are generated there is less net income yielding less return for shareholders and a less attractive investment opportunity.
The return on shareholders’ fund, capital employed, total assets all have gone down during this period. The ability of the company to pay its short term debt hasn’t varied much, but the administrative expenses have gone up by a very large amount.
Shareholder’s equity would be lower than that shown in 1982 ($318,000) because the company has to pay off interest and principal for many loans. There will be little money left for shareholder’s equity.
The return on equity (ROE) has also shown an increase in 2009 over the previous year suggesting a successful investment by shareholders. This increase, coupled with the fact that the basic earnings per share (EPS) has increased significantly from 61.78 cents in 2008 to 88.26 cents in 2009 (143%) shows great improvement in the profit per share. Please note that the basic EPS has been used in this analysis as the diluted EPS includes employee options (JBH Annual Report, 2009), skewing and reducing the value of the EPS.
INVESTools should definitely capitalize these expenses. The practice of not capitalizing these expenses has led to routine recording of net losses
$10,644,800 / $2,271,400 = 4.69 Times Return on Common Stockholders’ Equity (2002) $647,645 / $1,928,960 = 33.58% Return
The recent decline in share price reflects that the market recognizes the declining profitability of the industry.
The productive assets of property, plant, and equipment changed dramatically in 1996 they were 5,581 to 2010 an increase to 21,706. In total current assets there was a increase in 1996 from 5,910 to in 2010 21,579. Another significant change is in long term debt in 1996 of 1,116 to in 2010 an increase to 14,041. Also an important figure to note is in the retained earning in 1996 they were 94% (15,127) to 2010 68%
Return on assets ratio declined in 2010. This is due to increased total assets in 2010 due to company's acquisition of assets. In 2011, the company had a higher return on equity, which indicates that Lowe’s was able to generate more profit from the money that shareholder invested. The sales generated relative to total assets decreased in 2010, mainly due to reduced sales in 2009 coupled with increased total assets. Fixed asset turnover has been relatively good for Lowes. The ratio indicates how well the company is able to put fixed assets to use in generating sales. Current ratio has improved over past three years indicating a strong trend for the company in its ability to pay its current liabilities with current assets. The long-term debt forms a major part of company's financing. The company reviews its
Analyst , on average , viewed the company not as much appealing at the lower price. On the other hand, back in the end of August 2000, analyst were
Profitability ratios decreasing from 2005 to 2006 although the sales has increased substantially and the net income as well but not in the same percentage of increase due to the high reliance on debt as the interest expense increased as mentioned before.
Operating profit margin figures in the table above show the return from net sales[13]. However profit margin ratios are high enough for the 3 years, there is a fall from 12.86% to 11.26% during 2011-12. Sales revenue increases with a higher rate than gross profit so there is a poor