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# Analysis of liquidity and profitability

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See attached file 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?

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#### Solution Summary

The solution examines an analysis of liquidity and profitability.

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## Ratio analysis, liquidity, profitability, stockholders returns

Based on your analysis, determine which company is better able to pay current liabilities (debt). Explain your rationale.

Determine what profitability ratios can tell you about a company's performance and how that information would influence investing decisions.

Determine which financial ratios you would use and how you would use them to determine which company has the most satisfied stockholders.

Create a list of financial-based guidelines that you should follow when selecting which of these two companies to invest in.

Determine which single piece of non-financial data is the most important to consider when making decisions about whether or not to invest in accompany. Explain your reasoning

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