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
|
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?