Question

Sun Microsystems is a leading supplier of computer-related products, including servers, workstations, storage devices, and network switches. In 2009, Sun Microsystems was acquired by Oracle Corporation. In the letter to stockholders as part of the 2001 annual report, President and CEO Scott G. McNealy offered the following remarks: Fiscal 2001 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 4. Also, for additional analysis of other factors, consolidated balance sheet(s) are presented in Exhibit 5.

Exhibit 1

                        2001 Dollars 2000 Dollars 1999 Dollars 1998 Dollars

Net revenues $ 18,550        $ 15,726           $11,804         $ 9,865

Costs and expenses:

Cost of sales $ 10,044         $ 7,543             $ 5,675          $ 4,645

Research and

development

                       2,011               1,626                1 ,273            1,034

Selling, general

and administrative

                        4,547               4,069               3,188              2,836

Goodwill

amortization

                           260                    63                    19                 0.3

In-process

research and

development

                             80                     11                  117                178

Total costs and

expenses

                    $ 16,942          $ 13,312           $ 10,272          $8,693.3

Operating Income

                       $1,608           $ 2,414             $ 1,532           $1,171.7

Gain (loss) on

strategic investments

                         $ -94                $ 206                       -                     -

Interest income, net

                        $ 362                $ 170                 $ 86                $ 48

Litigation settlement

                             -                         -                          -                   -

Income before taxes

                    $ 1,876               $ 2,790             $ 1,618         $1,219.7

Provision for income

taxes

                  $ 1,004.9             $ 969.12            $ 699.6          $ 426.2

Cumulative effect of

change in accounting

principle, net

                        $ -55                            -                     -                   -

Net income

                      $ 926.1            $1,820.88           $ 918.4          $ 793.5

Net income per

common share-

                        $ 0.27                 $ 0.54              $ 0.28           $ 0.25

diluted

Shares used in the

calculation of net

income per common

share-diluted

                           3,430             3,372                 3,280               3,174

Part A

Referring to Exhibit 1, compute the annual percentage change in net income per common share-diluted (second

Rate of change, 1998 to 1999:

Rate of change, 1999 to 2000:

Rate of change, 2000 to 2001:

Part B

Also in Exhibit 1, compute net income/net revenue (sales) for each of the four years. Begin with 1998.

1998 Profit Margin:

1999 Profit Margin:

2000 Profit Margin:

2001 Profit Margin:

Part C

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

2000 Return on Stockholders' Equity:

2001 Return on Stockholders' Equity:

Part D

Analyze your results to Question 2 (Part B above) more completely by computing ratios 1, 2a, 2b, and 3b (these

numbers correspond with the numbered ratios listing in Chapter 3 of our textbook) for 2000 and 2001. Actually,

the answer to ratio 1 can be found as part of the answer to question 2 (Part B), but it is helpful to look at it again.

Ratio             2000                   2001

1

2a

2b

Part E

The average stock prices for each of the four years shown in Exhibit 1 were as follows:

1998 11¼

1999 16¾

2000 28½

2001 9½

Compute 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.

1998 P/E Ratio:

1999 P/E Ratio:

2000 P/E Ratio:

2001 P/E Ratio:

Answer 1

	Y 2001	Y 2000	Y 1999	Y 1998
Net Revenues	18,550	15,726	11,804	9,865
Net Income	926.1	1,820.9	918.4	793.5
Net Income Per Share - Diluted	0.27	0.54	0.28	0.25
Shares - Diluted	3,430	3,372	3,280	3,174
Average Stock Price	9.5	28.5	16.75	11.25
Part A:
Annual % Change in Net Income per Share-Diluted
Net Income Per Share - Diluted	0.27	0.54	0.28	0.25
Annual % Change in Net Income per Share-Diluted	-50.0%	92.9%	12.0%
Part B:
Profit Margin:
Net Income	926.1	1,820.9	918.4	793.5
Net Revenue	18,550	15,726	11,804	9,865
Net Income / Net Revenue	5.0%	11.6%	7.8%	8.0%
Part C:
Return on Stockholders Equity
This is computed by considering Net Income / Total Equity
The information of the Total Equity is missing;
Part D:
Missing information for caclculating ratios
Part E:
P/E Ratio
Stock Price	9.5	28.5	16.75	11.25
Net Income	926.1	1,820.9	918.4	793.5
Net Income Per Share - Diluted	0.27	0.54	0.28	0.25
P/E Ratio	35	53	60	45
P/E : the current stock price divided by the per-share earnings (the earnings for the past 12 months divided by the common shares outstanding