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SunShine Systems (trends, ratios stock performance...

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SunShine Systems (trends, ratios stock performance) (LO3) SunShine Systems is a leading supplier of computer related products, including servers, workstations, storage devices, and network switches.? In the letter to stockholders as part of the 2012 annual report, President and CEO Scott G. McNealy offered the following remarks: Fiscal 2012 was clearly a mixed bag for Sun, the industry, and the economy as a whole. Still, we finished with revenue growth of 16 percent?and that?s significant. We believe it?s a good indication that Sun continued to pull away from the pack and gain market share. For that, we owe a debt of gratitude to our employees worldwide, who aggressively brought costs down? even as they continued to bring exciting new products to market. The statement would not appear to be telling you enough. For example, McNealy says the year was a mixed bag with revenue growth of 16 percent. But what about earnings? You can delve further by examining the income statement in Exhibit 1. Also, for additional analysis of other factors, consolidated balance sheet(s) are presented in Exhibit 2 below. 1. Referring to Exhibit 1, compute the annual percentage change in net income per common share-diluted (second numerical line from the bottom) for 2009-2010, 2010?2011, and 2011?2012. 2. Also in Exhibit 1, compute net income/net revenue (sales) for each of the four years. Begin with 2009. 3. What is the major reason for the change in the answer for Question 2 between 2011 and 2012? To answer this question for each of the two years, take the ratio of the major income statement accounts to net revenues (sales). Cost of sales Research and development Selling, general and administrative expense Provision for income tax 4. Compute return on stockholders? equity for 2011 and 2012 using data from Exhibits 1 and 2. ? Exhibit 1 SUNSHINE SYSTEMS, INC. Summary Consolidated Statement of Income (in millions) 2012 2011 2010 2009 Dollars Dollars Dollars Dollars Net revenues $16,450 $13,850 $10,005 $9,982 Costs and expenses: Cost of sales 8,055 4,590 3,890 4,710 Research and development 2,020 1,680 1,280 1,040 Selling, general and administrative 4,530 4,075 3,230 2,830 Goodwill amortization 260 70 25 9 In-process research and development 75 18 130 180 Total costs and expenses 14,940 10,433 8,355 8,769 Operating Income 1,510 3,417 1,450 1,213 Gain (loss) on strategic investments (80) 200 ? ? Interest income, net 355 175 95 40 Income before taxes 1,785 2,792 1,745 1,253 Provision for income taxes 580 890 570 380 Cumulative effect of change in accounting principle, net (50) ? ? ? Net income $ 1155 $ 1,902 $ 1,175 $ 873 Net income per common share?diluted $ 0.34 $ 0.56 $ 0.36 $ 0.28 Shares used in the calculation of net income per common share?diluted 3,390 3,382 3,272 3,100 5. Analyze your results to Question 4 more completely by computing ratios 1, 2a, 2b, and 3b (all from this chapter) for 2011 and 2012. Actually the answer to ratio 1 can be found as part of the answer to question 2, but it is helpful to look at it again. What do you think was the main contributing factor to the change in return on stockholders? equity between 2011 and 2012? Think in terms of the Du Pont system of analysis. 6. The average stock prices for each of the four years shown in Exhibit 1 were as follows: 2009 9 1/2 2010 13 3/4 2011 24 1/2 2012 16 1/2 a. Computer the price/earnings (P/E) ratio for each year. That is, take the stock price shown above and divide by net income per common stock-dilution from Exhibit 1. b. Why do you think the P/E has changed from its 2011 level to its 2012 level? A brief review of P/E ratios can be found under the topic of Price-Earnings Ratio Applied to Earnings per Share in Chapter 2. ? Exhibit 2 SUNSHINE SYSTEMS, INC Consolidated Balance Sheets (in millions) Assets 2012 2011 Current assets: Cash and cash equivalents $ 1,480 $ 1,855 Short-term investments 595 735 Accounts receivable, net allowances of $410 in 2012 and $534 in 2011 2,975 2,710 Inventories 1,063 565 Deferred tax assets 1,012 483 Prepaids and other current assets 979 492 Total current assets 8,104 6,840 Property, plant and equipment, net 2,710 2,105 Long-term investments 4,680 4,506 Goodwill, net of accumulated amortization of $349 in 2012 and $88 in 2011 2,061 185 Other assets, net 850 545 $18,405 $14,181 Liabilities and Stockholders? Equity Current liabilities: Short-term borrowings $ 5 $ 10 Accounts payable 1,070 944 Accrued payroll-related liabilities 498 771 Accrued liabilities and other 1,384 1,175 Deferred revenues and customer deposits 1,847 1,299 Warranty reserve 335 221 Income taxes payable 100 230 Total current liabilities 5,239 4,650 Deferred income taxes 754 587 Long-term debt and other obligations 1,710 1,730 Total debt $ 7,703 $ 6,967 Commitments and contingencies Stockholders? equity: Preferred stock, $0.001 par value, 10 shares authorized (1 share which has been designated as Series A Preferred participating stock): no shares issued and outstanding ? ? Common stock and additional paid-in-capital, $0.00067 par value, 7,200 shares authorized; issued: 3,536 shares in 2012 and 3,495 shares in 2011 6,238 2,728 Treasury stock, at cost: 288 shares in 2012 and 301 shares in 2011 (2,435) (1,438) Deferred equity compensation (75) (20) Retained earnings 6,905 5,969 Accumulated other comprehensive income (loss) 69 (25) Total stockholders? equity 10,602 7,314 $18,405 $14,181 ? 7. The book values per share for the same four years discussed in the preceding question were: 2009 $1.21 2010 $1.57 2011 $2.05 2012 $3.75 a. Compute the ratio of price to book value for each year. b. Is there any dramatic shift in the ratios worthy of note?

 

Paper#9007 | Written in 18-Jul-2015

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