Sun Microsystems develops, manufactures, and sells computers for network systems. Exhibit 5.19 presents selected financial data for Sun Microsystems for each of the five years ending June 30, 2005, to June 30, 2009. The company did not go bankrupt, but instead was acquired in 2010 by Oracle. We recommend that you create an Excel spreadsheet to compute the values of the ratios and the Altman’s Z-score in Parts a and b, respectively.
a. Compute the value of each of the following risk ratios.
(1) Current Ratio (at the end of 2005–2009)
(2) Operating Cash Flow to Current Liabilities Ratio (for 2006–2009)
(3) Liabilities to Assets Ratio (at the end of 2005–2009)
(4) Long-Term Debt to Long-Term Capital Ratio (at the end of 2005–2009)
(5) Operating Cash Flow to Total Liabilities Ratio (for 2006–2009)
(6) Interest Coverage Ratio (for 2005–2009)
b. Compute the value of Altman’s Z-score for Sun Microsystems for each year from 2005–2009.
c. Using the analyses in Parts a and b, discuss the most important factors that signal the likelihood of bankruptcy of Sun Microsystems in 2010.