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Mba 503 Problem Sets

Comprehensive Problem
An Evaluation of financial Statement Analysis

Profitability 2000 2001

Conclusion

1. Profit Margin 12% 5%
2. Return on Assets 13% 5%
3. Return on Equity 25% 9%

Asset Utilization

4. Receivables Turnover 6 6
5. Average Collection Period 61days 58days
6. Inventory Turnover 28 17
7. Fixed Asset Turnover 8 7
8. Total Asset Turnover 2 2

Liquidity

9. Current Ratio 1.51 1.54
10. Quick Ratio 1.4 1.34

Debt Utilization

11. Dept to Total Assets 48% 42%

1 A high profit margin for 2000 indicates a high margin of safety: lower risk that a decline in sales will erase profits and result in a net loss.
2 This tells how profitable Sun’s Microsystems, Inc.’s assets are in generating revenue. 13% return on assets for 2000 compared to only 5% in 2001 indicates that the company had more in 2000 dollar wise of earnings it derives from each dollar of assets the company controls.
3 The high percentage of 2000, 25% is a clear indication of a successful year with high rate of return on the ownership interest of the common stock owners. Sun had more opportunities at generating profits from every net asset dollar. On the other hand, a highly noticeable decline for 2001 from 25% to 9% obviously had very little to offer.
4 Asset utilization for the Sun Microsystems does not show overall major changes in comparison of the two years, yet again inventory turnover was noticeably high in 2000 by 11 times more than the coming year. A low turnover rate may point to overstocking or deficiencies in the product line or marketing effort. However, in some instances a low rate may be appropriate, such as where higher inventory levels occur in anticipation of rapidly rising prices or shortages. A high turnover rate may indicate inadequate inventory levels, which may lead to a loss in business.
5 It is interesting to see that despite the obvious better year of 2000, the total net revenue for...