Comprehensive Problem 1 – SUNSHINE SYSTEMS


Product Description

SunShine Systems (trends, ratios stock 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.


  1. 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.
  2. Also in Exhibit 1, compute net income/net revenue (sales) for each of the four years. Begin with 2009.
  3. 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

  1. Compute return on stockholders’ equity for 2011 and 2012 using data from Exhibits 1 and 2.

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

  1. 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.
  2. Why do you think the P/E has changed from its 2011 level to its 2012 level?

A brief review of P/E ratios can be found under the topic of Price-Earnings Ratio Applied to Earnings per Share in Chapter 2.




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