Consider the following income statement (dollars in thousands):

1999 1998 Net revenues:

Computer sales $ 75,250 $ 62,250 Software sales 45,400 38,600 Net revenues 120,650 100,850 Operating expenses:

Cost of sales 4,205 4,500 Marketing 63,520 45,542 Research and development 30,100 21,587 General and administrative 20,026 19,000 Total operating expenses 117,851 90,629 Income from operations $ 2,799 $ 10,221 Required

a. Conduct horizontal and vertical analyses of the firm’s income statement.

b. Evaluate the firm’s profitability in 1999 versus 1998?

c. In what areas was the firm successful in either year?

d. Based on the approximate trends shown here, is it likely that the firm’s income from operations will increase or decrease in 2000? Why?

e. Identify the underlying business reasons as to why revenues are increasing but the cost of sales is decreasing. Why might some of the other expenses be dramatically increasing while others are almost constant?