Share
Explore BrainMass

Analysis of liquidity and profitability measures of Gateway, Inc.

Answer question.

1. 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 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
At December 31, 1997, total assets were $2,039,271 and total stockholders' equity was $930,044.
1. Calculate Gateway, Inc.'s working capital, current ratio, and acid-test ratio at December 31, 1999, and 1998.
2. Calculate Gateway's ROE for the years ended December 31, 1999, and 1998.
3. Calculate Gateway's ROI, showing margin and turnover, for the years ended December 31, 1999, and 1998.
4. Evaluate the company's overall liquidity and profitability.
5 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?

Solution Preview

For question 1 ~ 2, please see the attached excel sheet.

For question 3, I am assuming "margin" means "profit margin" and "turnover" means "asset turnover". There are many margins and turnovers that we can calculate, and I think these two are the most appropriate in the given context. Please let me know if other kind of margin or turnover are intended to be calculated here. I will be happy to go back and edit them in ...

Solution Summary

This solution shows step-by-step calculations to determine working capital, current ratio, acid-test ratio, ROE, ROI, margin and turnover. It also provides an evaluation of the company's liquidity and profitability and explains the primary reasons for declaring pay or dividends.

$2.19