Sun Microsystem Paper

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  • Topic: Revenue, Generally Accepted Accounting Principles, Income statement
  • Pages : 5 (1039 words )
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  • Published : April 28, 2008
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A complete analysis was conducted on the financial statements and status of Sun Microsystems. After examining the research findings and analysis it is fair to say that evidence determines that Sun Microsystems finances has not been on a steady incline. In fact, it had definitely experienced some highs and lows in its return on investment and stockholders? In order to get a concise understanding of where problems are within the company’s operations the following factors were considered and examined: the annual percentage change in net income per common share diluted, net income/net revenues, the major income statement accounts to net revenues, return on stockholders? In order for Sun Microsystems to see a greater return in its bottom line assets it must consider an alternative approach of operating its organization. The following is a comprehensive view of the finances of Sun Microsystems from 1998-2001. Sun Microsystems has experienced significant fluctuations in performance

1. Compute annual percent change in net income per common share diluted. Formula: % change= P2-P1/P1

Net income per common share-dilution0.55-0.27=0.280.55-0.31=0.24
Annual %0.28/0.27=103%
0.07/0.24= 29%

2. Compute net income/net revenue.

Net income9271,8541,030755
Net revenue18,25015,72111,8069862
Profit Margin19.6%11.7%11.4%7.6%

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3. What is the major reason for the change in the answer for question 2 between 2000 and 2001?

Cost of Sales10,0417,549
Research and Development2,0161,630
Selling, General, and Administrative Expenses4,5444,072
Provision for Income Taxes603917

Net Revenues18,25015,721

Ratio Cost of Sales to Net Revenue55%48%
Ratio Research and Development to Net Revenue11%10%
Ratio Selling, General & Administrative Expenses to Net Revenue25%26% Ratio Provision for Income Taxes to Net Revenue3%6%

4. Compute return on stockholders' equity for 2000 and 2001 using data from Exhibits 1 and 2.

Net income$927$1,854
Stockholder equity$10,586$7,309

Sun Microsystems saw tremendous growth in net income between 1999 and 2000 leading up to a sharp decline between 2000 and 2001. The income statements show increased revenues in 2001, contradicting the data above. Further analysis provides an explanation for the deceleration in income growth in spite of increased revenue.

5. Analyze your results to question 4 more completely by computing ratios 1, 2a, 2b, and 3b (all from this chapter) for 2000 and 2001.

1. Profit Margin
net incomenet sales (revenue)income / sales
2000 $ 1,854 $ 15,721 11.8%
2001 $ 927 $ 18,250 5.1%

2a. Return on Assets
net incometotal assetsincome / assets
2000 $ 1,854 $ 14,152 13.1%
2001 $ 927 $ 18,181 5.1%

2b. Return on Assets
net incomenet sales (revenue)income / salesnet sales (revenue)total assetssales/ assets 2000 $ 1,854 $ 15,721 11.8% $ 15,721 $ 14,152 1.11 2001 $ 927 $ 18,250 5.1% $ 18,250 $ 18,181 1.00

3b. Return on Equity
Return on assetsdebt/assets ratioReturn on Equity

6a. Compute the price/earnings (P/E) ratio for each year.

Stock Price$9.50$28.50$16.75$11.25
Net income per common stock-dilution$0.27$0.55$0.31$0.24 Price earnings ratio$35.19$51.82$54.03$46.88

6b. Why do you think the P/E has changed from its 2000 level to its 2001 level?

A firms earnings and the sales growth both influence the price earnings ratio. The change from 2000 to 2001 was a decrease in the stock price and net income. There was a decrease a little over 50% in both categories.

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7a. Compute the ratio of price to book value for each...
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