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Trend Analysis for Gateway, Inc.

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3. The following historical data were derived from Gateway, Inc.'s consolidated financial statements. (It should be noted that past data are not necessarily indicative of the results of future operations.)

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The following historical data were derived from Gateway, Inc.'s consolidated financial statements. (It should be noted that past data are not necessarily indicative of the results of future operations.).

1995 1996 1997 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 maturties 10,805 7,244 7,240 3,360 2,998

a) Are the trends expressed in the above data generally consistent with each other?
b) In your opinion, which of the above trends would be most meaningful to a potential investor in common stock of Gateway, Inc.? Which trend would be least meaningful?
c) What other data (trend or otherwise) would you like to have access to prior to making an investment in Gateway, Inc.?

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a). Some of the items are trending consistently while others are not. Graphically, net sales and total assets are increasing at a consistent rate. Long term debt is decreasing at a similar rate indicative of the firm's use of other financing options relative to the new assets. However, net income isn't necessarily increasing in a manner similar manner to net sales. Perhaps of greatest value to the potential investor is looking at the net ...

Solution Summary

The solution performs trend analysis on a set of financial data and details what other information might be helpful in the decision process of whether or not to invest in the firm presented.

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Year Net Sales
1993 9,239
1994 12,477
1995 15,470
1996 19,535
1997 24,156
1998 30,219
1999 38,434
2000 45,738
2001 53,553
2002 58,247

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? Listed below is the selling price for a share of PepsiCo, Inc. at the close of the year.

Year Price Year Price Year Price
1990 12.9135 1994 18.3160 1998 40.6111
1991 16.8250 1995 27.7538 1999 35.0230
1992 20.6125 1996 29.0581 2000 49.5625
1993 20.3024 1997 36.0155 2001 48.6800
2002 42.2200
a. Plot the data.

b. Determine the least squares trend equation.

c. Calculate the points for the years 1993 and 1998

d. Estimate the selling price in 2006. Does this seem like a reasonable estimate based on the historical data?

e. By how much has the stock price increased or decreased (per year) on average during the period?

? Introduction to Management Accounting text:

o Ch. 3, problem 3-41

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Analysis of liquidity and profitability measures of Gateway, Inc. (Check our website for future updates.) The following summarized data (amounts in thousands) are taken from the December 31, 1999, and 1998, comparative financial statements of Gateway, Inc., a direct marketer and distributor of personal computers (PCs) and PC-related products:

(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
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

At December 31, 1997, total assets were $2,039,271 and total stockholders' equity was $930,044.

a. Calculate Gateway, Inc.'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, Inc., did not declare or pay any dividends during fiscal 1999 or fiscal 1998. What do you suppose is the primary reason for this?

Optional continuation of Case 3.18-trend analysis.
The following historical data were derived from Gateway, Inc.'s consolidated financial statements. (It should be noted that past data are not necessarily indicative of the results of future operations.)

1995 1996 1997 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
a. Are the trends expressed in the above data generally consistent with each other?

b. In your opinion, which of the above trends would be most meaningful to a potential investor in common stock of Gateway, Inc.? Which trend would be least meaningful?

c. What other data (trend or otherwise) would you like to have access to prior to making an investment in Gateway, Inc.?

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