Question: Sun Microsystems, Inc., develops, manufactures, and
Sun Microsystems, Inc., develops, manufactures, and sells computers for network systems. Exhibit 5.21 presents selected financial data for Sun Microsystems for each of the five years ending June 30, 2005, to June 30, 2009. The company did not go bankrupt, but instead was acquired in 2010 by Oracle. We recommend that you create an Excel spreadsheet to compute the values of the ratios and the Altman’s Z-score in Requirements a and b, respectively.
REQUIRED
a. Compute the value of each of the following risk ratios.
(1) Current ratio (at the end of 2005–2009)
(2) Operating cash flow to current liabilities ratio (for 2006–2009)
(3) Liabilities to assets ratio (at the end of 2005–2009)
(4) Long-term debt to long-term capital ratio (at the end of 2005–2009)
(5) Operating cash flow to total liabilities ratio (for 2006–2009)
(6) Interest coverage ratio (for 2005–2009)
b. Compute the value of Altman’s Z-score for Sun Microsystems for each year from 2005–2009.
c. Using the analyses in Requirements a and b, discuss the most important factors that signal the likelihood of bankruptcy of Sun Microsystems in 2010.
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Exhibit 5.21 Select Financial Data for Sun Microsystems, Inc. (amounts in millions, except per-share amounts) (Problem 5.18) For Year Ended June 30, 2009 2008 2007 2006 2005 Sales $11,449 $13,880 $13,873 $13,086 $11,070 Net income (loss) before interest $640 $30 and taxes $(2,166) $622 $(620) $(150) Interest expense Net income (loss) $17 $39 $5 $34 $(2,234) $403 $473 $(864) $(107) Current assets $6864 $7,834 $9,328 $8,460 $7,191 $14,190 $4,766 $1,123 Total assets $11,232 $14,340 $15,838 $5,451 $15,082 Current liabilities $5,621 $695 $5,668 $1,265 $6,165 Long-tem debt $1,264 $575 Total liabilities $7,927 $8,752 $8,659 $8,738 $7,516 Retained earnings Shareholders' equity Cash flow provided by operations Common shares outstanding Market price per share $(2,055) $430 $189 $(257) $1,387 $3,305 $5,588 $7,179 $6,344 $6,674 $457 $1,329 $958 $567 $279 752 752 884 876 852 $9.22 $10.88 $20.76 $16.60 $14.92 Source: Sun Microsystems, Inc, Forms 10-K for the Fiscal Years Ended June 2005-2009.
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