An Evaluation of Sun Microsystems Consolidated Balance Sheet - Essay Example

On one hand this shows a healthy sign. However the lower profitability has offset the advantage resulting from the reduced debts. This trend indicates that the company will face liquidity problem in the near future if necessary steps are not taken to improve the profitability. The current ratio for the year 2001 is showing an increasing trend. This is due to the increased inventory level the company is holding. When the quick ratios is compared between the years 2000 and 2001 it can be observed that there is a sharp decline in this ratio implying that the short term liquidity position of the company has deteriorated over the year as most of the funds are locked up in inventory.

This can also be seen from the reduction in the inventory turnover ratio which has decline from 28.22 in the year 2000 to 17.40 in the year 2001. This means that the company has locked up more liquid funds in inventory which is affecting the liquidity of the company. It is observed that there is a sharp decline in all the profitability ratios. The operating income of the company has declined from 15.22% in the year2000 to 7.18% in the year 2001. This is due to the increase in the cost of sales which is at 55% for the year 2001 (48% for 2000).

Further the increase in the expenses like amortization of goodwill and research and development expenses have also contributed to the lower operating and net income. Since the profitability of the company is less during the year 2001 it has resulted in a lower ROA and ROE. The company has issued additional common stock in the year 2001 which has increased the equity and when the lower profitability applied on higher shareholder equity the ROE has shown a sharp decline from 25.37% in the year 2000 to 8.

76% in the year 2001. There is no decrease in the long term liabilities of the company in the year 2001. This implies the company has