DATA DISCLOSURES Chapter 5
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Transcript DATA DISCLOSURES Chapter 5
DATA
DISCLOSURES
Chapter 5
CHAPTER 5 OBJECTIVES
Understand why the overall economic
and industry conditions matter to
financial statement analysis.
Explain the state of the U.S. and
international economy for 1993—1998.
Discuss the background, environment,
markets, and trends in the personal
computer (PC) industry.
CHAPTER 5 OBJECTIVES
(CONT.)
Describe the performance of Apple
Computer during the period analyzed.
List some of Apple’s competitors.
Define the new, or information,
economy and explain the role of the PC
industry in it.
ECONOMIC CONDITIONS
Provide an overall context for industry
and corporate analysis
U.S. Economy—prosperous during the
period examined.
Exhibit 5-1
Real Gross Domestic Product
1993-1998 (billions of 1993 dollars)
$7,600
$7,200
$6,800
$6,400
$6,000
1993
1994
1995
1996
1997
1998
Exhibit 5-2
Unemployment Rate (annual percentage)
1993-1998
10%
8%
6%
4%
2%
0%
1993
1994
1995
1996
1997
1998
Exhibit 5-3
Price Changes (annual percentage change)
1993-1998
4%
3%
2%
1%
0%
1993
1994
1995
1996
-1%
-2%
-3%
Consumer Prices
Wholesale Prices
1997
1998
Exhibit 5-4
Standard & Poor's 500 Index (annual
percentage growth)
1993-1998
1000%
900%
800%
700%
600%
500%
400%
1993
1994
1995
1996
1997
1998
ECONOMIC CONDITIONS
(CONT.)
Global economy
Mixed results in 1997 and 1998
Healthy throughout the world from 1993 to 1996
Asian, Russian, and Latin American
economies declined in 1997 and 1998
Thailand no longer pegs baht’s value to that of the
U.S. dollar
Set of a domino effect throughout Asia—known as
the Asian contagion
ECONOMIC CONDITIONS
(CONT.)
Western Europe
Remained healthy in 1997 and 1998
Development of European Union
contributed to economic growth
Countries become more pro business and
globally competitive
PERSONAL COMPUTER
INDUSTRY
Companies that design, manufacture,
and distribute PCs and related devices
to businesses and individuals
PERSONAL COMPUTER
INDUSTRY (CONT.)
Industry changes
Rapidly expanding sales—90 million units
shipped in 1998 (Exhibit 5-5)
Declining prices—machine prices declined
by 50% from 1993 to 1998 (Exhibit 5-6)
Product changes—Laptops and servers are
growing products, but desk-top machines
still dominate sales (Exhibit 5-7)
Exhibit 5-6
Annual Global Shipment of PCs (millions of units)
1993-1998
90
80
70
60
50
40
30
20
10
0
1993
1994
1995
1996
1997
1998
Exhibit 5-7
Average Wholesale Price of PCs (dollars)
1993-1998
$2,600
$2,400
$2,200
$2,000
$1,800
$1,600
$1,400
1993
1994
1995
1996
1997
1998
PERSONAL COMPUTER
INDUSTRY (CONT.)
Market share
Fragmented industry—top four companies
command only 36% of the market (Exhibit
5-8)
Shift in market leaders from 1993 to 1998
(Exhibit 5-8)
Apple Computer no longer a top-tier firm
PERSONAL COMPUTER
INDUSTRY (CONT.)
Geographical purchases
United States dominates with 38% of
purchases (Exhibit 5-9)
Rapid growth in Western Europe (Exhibit 510)
No growth in Asia in 1997 and 1998
(Exhibits 5-10 and 5-11)
Exhibit 5-11
Annual Percentage Change in Sales
1998
30%
25%
20%
15%
10%
5%
0%
Western Europe
-5%
United States
Latin America
Japan
Other Asian
PERSONAL COMPUTER
INDUSTRY (CONT.)
Mature markets—industry became
entrenched during the 1990’s as evidenced by
Intense competition
Shrinking profit margins
Greater cost controls
Aggressive inventory management
Expanded products and services
Lack of product differentiation
Business consolidation
Revamped distribution networks
PERSONAL COMPUTER
COMPANIES
Apple Computer’s financial performance
Poor during the period examined
Compound annual growth rates declined
from 1993 to 1998
PERSONAL COMPUTER
COMPANIES (CONT.)
Compaq, Dell, and Gateway selected as
benchmarks
Four firms have similar financial
reporting policies (Exhibit 5-13)
Industry comparability (similar
accounting methods)
PERSONAL COMPUTER
COMPANIES (CONT.)
Shift in fortunes
Compaq and Dell began to dominate sales
(Exhibit 5-14)
Dell become the most profitable (Exhibit 515)
All companies decreased inventory (Exhibit
5-16)
ECONOMIC CHANGE
Shift in economy from an industrial to a
service base
Differential between “old” economy and
“new” economy
Information is a major component of
the new economy
ECONOMIC CHANGE (CONT.)
Disruptive technology—replaces
entrenched ways of doing things, such
as the PC
PCs also increased productivity for old
economy firms
Productivity of the computer industry
far surpassed that of the overall
economy (Exhibit 5-17)
Exhibit 5-17
National and Computer Industry Productivity
1993-1998
600%
500%
400%
300%
200%
100%
0%
1993
1994
1995
Computer Industry Real Output
1996
1997
National Real Output
1998