Question:
See below for a summary of data (amounts in thousands) of comparative financial statements for Gateway, Inc., a direct marketer and distributor of personal compters (PCs) and PC-related products:
At December 31, 1997, total assets were $2,039,271 and total stockholders' equity was $930,044.
(a) Calculate Gateway's working capital, current ratio, and acid-test ratio at December 31, 1999, and 1998
(b) Calculate Gateway's ROE for the years ended December 31, 1999 and 1998.
(c) Calculate Gateway's ROI, showing margin and turnover, for the years ended December 31, 1999 and 1998.
(d) Evaluate the company's overall liquidity and profitability.
(e) Gateway did not declare or pay any dividends during fiscal 1999 or fiscal 1998. What do you suppose is the primary reson for this?
Looking at the trend analysis which is also attached
(f) Are the trends expressed in the data generally consistent with each other?
(f) In your opinion, which of the trends would be most meaningful to a potential investor in common stock of Gateway? Which trend would be least meaningful?
(h) What other data (trend or otherwise) would you like to have access to prior to making an investment in Gateway?
| (Amounts expressed in thousands) |
|
1999 |
1998 |
|
|
|
|
|
|
|
| For the Year Ended December 31: |
|
|
|
| Net Sales |
|
|
|
|
8,645,561 |
7,467,925 |
| Cost of goods sold |
|
|
|
6,745,744 |
5,921,651 |
| Operating income |
|
|
|
595,670 |
494,227 |
| Net Income |
|
|
|
427,944 |
346,399 |
|
|
|
|
|
|
|
| At December 31: |
|
|
|
|
|
| Assets |
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
1,127,654 |
1,169,810 |
| Marketable securities |
|
|
208,717 |
158,657 |
| Accounts receivable, net |
|
|
646,339 |
558,851 |
| Inventory |
|
|
|
191,870 |
167,924 |
| Other current assets |
|
|
522,225 |
172,944 |
| Property, Plant, and equipment, net |
|
745,660 |
530,988 |
| Intangibles, net |
|
|
|
52,302 |
65,944 |
| Other noncurrent assets |
|
|
459,921 |
65,262 |
| Total assets |
|
|
|
3,954,688 |
2,890,380 |
|
|
|
|
|
|
|
| Liabilities and Owners' Equity |
|
|
|
|
| Current maturities of long-term obligations |
5,490 |
11,415 |
| Accounts payable |
|
|
|
898,436 |
718,071 |
| Accrued liabilities |
|
|
|
609,132 |
415,265 |
| Accrued royalties |
|
|
|
153,840 |
167,873 |
| Other current liabilities |
|
|
142,812 |
117,050 |
| Long-term obligations, net of current maturities |
2,998 |
3,360 |
| Warranty and other liabilities |
|
|
124,862 |
112,971 |
| Common stock and additional paid -in capital |
660,070 |
367,552 |
| Retained earnings |
|
|
|
1,408,852 |
980,908 |
| Other stockholders' equity |
|
|
-51,804 |
-4,085 |
| Total liabilities and stockholders' equity |
|
3,954,688 |
2,890,380 |
| Trend Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
1995 |
1996 |
1998 |
1998 |
1999 |
| Net Sales |
|
|
|
|
3,676,328 |
5,035,228 |
6,293,680 |
7,467,925 |
8,645,561 |
| Net income |
|
|
|
172,981 |
250,679 |
109,797 |
346,399 |
427,944 |
| Total assets |
|
|
|
1,124,011 |
1,673,411 |
2,039,271 |
2,890,380 |
3,954,688 |
| Long-term obligations, Net of current maturities |
10,805 |
7,244 |
7,240 |
3,360 |
2,998 |