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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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