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DATA DISCLOSURES

Understand the significance of overall economic and industry conditions in financial statement analysis. Explore the state of the US and international economy from 1993 to 1998. Gain insights into the personal computer (PC) industry, including the performance of Apple Computer, its competitors, and the role of the PC industry in the new economy.

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DATA DISCLOSURES

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  1. DATA DISCLOSURES Chapter 5

  2. 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.

  3. 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.

  4. ECONOMIC CONDITIONS • Provide an overall context for industry and corporate analysis • U.S. Economy—prosperous during the period examined.

  5. 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

  6. 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

  7. PERSONAL COMPUTER INDUSTRY • Companies that design, manufacture, and distribute PCs and related devices to businesses and individuals

  8. 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)

  9. 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

  10. PERSONAL COMPUTER INDUSTRY (CONT.) • Geographical purchases • United States dominates with 38% of purchases (Exhibit 5-9) • Rapid growth in Western Europe (Exhibit 5-10) • No growth in Asia in 1997 and 1998 (Exhibits 5-10 and 5-11)

  11. 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

  12. PERSONAL COMPUTER COMPANIES • Apple Computer’s financial performance • Poor during the period examined • Compound annual growth rates declined from 1993 to 1998

  13. 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)

  14. PERSONAL COMPUTER COMPANIES (CONT.) • Shift in fortunes • Compaq and Dell began to dominate sales (Exhibit 5-14) • Dell become the most profitable (Exhibit 5-15) • All companies decreased inventory (Exhibit 5-16)

  15. 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

  16. 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)

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