Develop diagnostics that point to quality of earnings issue

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Reference no: EM131491454

Question: Quality Diagnostics: Gateway, Inc. (Medium) Gateway, the computer manufacturer, was a fast-growing company during the 1990s, with continual revenue and earnings growth, bringing admiration from analysts. However, in 2000 revenue growth slowed, from $8,965 million in 1999 to only $9,601 million, despite the opening of over 800 new retail outlets. Operating income was down, at $231 million (after tax) compared with $403 million in 1999. The firm trumpeted its retail expansion, which pleased analysts, and the stock remained around $60. However, in 2001, a torpedo struck: The firm took a restructuring charge of $876 million and reported an after-tax operating loss of $983 million. The stock dropped to $20. Below are some numbers reported in Gateways 2000 10-K filing. Go through these numbers and develop diagnostics that point to a quality of earnings issue that might forecast that earnings in 2001 would be degraded.

Reference no: EM131491454

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