What was the main contributing factor to change in return

Reference no: EM13474745

SunShine Systems(trends,ratiosstock 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 on page 92.

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.
Also in Exhibit 1, compute net income/net revenue (sales) for each of the four years. Begin with 2009.
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...............................................	$18,450	$15,850	$12,005	$9,982
Costs and expenses:
Cost of sales........................................	10,055	7,590	5,690	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............................	16,940	13,433	10,355	8,769
Operating Income.......................................	1,510	2,417	1,650	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 2000 and 2001? 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 12 1/2

2010 18 3/4

2011 27 1/2

2012 10 1/2

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.
Why do you think the P/E has changed from its 2011 level to its 2012 level?

Comprehensive Problem 2 (Continued)

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..........................................................................	395	635
Accounts receivable, net allowances of $410 in 2012 and $534 in 2011.......................................................................................	2,975	2,710
Inventories.............................................................................................	1,063	565
Deferred tax assets................................................................................	1,112	683
Prepaids and other current assets...........................................................	979	492
Total current assets.............................................................................	8004	6,940
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
	$18,305	$14,281
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).....................................	(31)	75
Total stockholders' equity.......................................................................	10,602	7,314

$18,305

$14,281

7. The book values per share for the same four years discussed in the preceding question were:

2009 $1.38

2010 $1.75

2011 $2.20

2012 $3.50

a. Compute the ratio of price to book value for each year.

b. Is there any dramatic shift in the ratios worthy of note?

Reference no: EM13474745

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