Question

Sun Microsystems is a leading supplier of computer-related products, including servers, workstations, storage devices, and network switches. In 2009, Sun Microsystems was acquired by Oracle Corporation. In the letter to stockholders as part of the 2001 annual report, President and CEO Scott G. McNealy offered the following remarks: Fiscal 2001 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 4. Also, for additional analysis of other factors, consolidated balance sheet(s) are presented in Exhibit 5.

Exhibit1 1998 Dollars Dollars $15,726$ 11,816 $ 9,861 2001 Dollars 2000 Dollars 1999 Net revenues Costs and expenses $ 18,350 Cost of sales 10,045 $7,550$5,671 $4,511 28 1,262 Research and development 2,016 4,542 261 79 1,6 1,024 3,1942,812 0.2 174 4,068 Selling, general and administrative Goodwill amortization 63 17 13 122 In-process research and development Total costs and expenses $ 16,943 $ 13,322S 10,266 $ 8,521.2 Operating Income Gain (loss) on strategic nvestments Interest income net $1,407 S-92 $2,404$1,550$ 1,339.8 S 201 S362 S 174 $ 88 $49 Litigation settlement Income before taxes $1,677 773.08 S -52 $2,779$1,638$ 1,388.8 $952.18$591.6 $ 626.32 Provision for ncome taxes Cumulative effect of change in accounting principle, net Net income $ 955.92 $0.28 $ 1.826.821 $ 1.0464| $ 76248 0.540.320.24 Net income per common share- diluted Shares used in the calculation of net ncome per common share- diluted 3,414 3,3833,270 3,177

Answer 1

P/E Ratio or Price/Earnings Ratio = Market Price per Share/Earnings per Share

1998: 11.25/0.24

=46.875 or $46.88

1999: 16.75/0.32

= 52.34

2000: 28.5/0.54

= 52.78

2001: 9.5/0.28

= 33.93