International Business Machines is a leading global technology firm that offers a variety of products and services in the information technology industry. Their current businesses consist of 5 major divisions: Global Technology Services segment; a Global Business Services segment; a Software segment; a System and Technology segment; and a Global Financing segment. Analyzing financial analysis can be done through balance sheet, income statement and cash flow. In 2011 IBM made net income of $15.8 billion and free cash flow of $ 16.6 billion. Total revenue increased from $ 99,879 million in 2010 to $ 106,916 million in 2011 which is a 7.1 percent increase.
NET INCOME IN MILLIONS
Total expenses and other income increased 10.8 percent in 2011 versus the prior year. Total operating expense and other income increased also by 10.2 percent, the drivers were currency (impacts of translation and hedging programs) and acquisitions in the 12 month period.Net income increased 6.9 percent and the net income margin was 14.8 percent. Operating earnings increased 8.6 percent and the operating earnings margin of 15.3 percent increased 0.2 points versus the prior year.
Total equity of $ 20,236 million decreased $ 2,937 million from December 31, 2010 as a result of 1) Increased treasury stock($ 14,803 million) driven by share repurchases, pension adjustments ($ 2,488) and currency translation adjustments ($ 711 million) 2) Higher retained earnings ($ 12,326 million) and common stock ($ 2,711 million).
The statement of a business's cash flows is often used by analysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit. IBM generated a cash flow of $ 19,846m million from operations; an increase of $ 298 million compared to 2010.Net cash flow can help a company in its investing activities of which IBM used $ 4,396 million.
IBMs, total assets increased by $2,981 million from $ 113,452 million in 2010 to $116,433 million in 2011. Total liabilities increased by $ 5918 million to $ 96,197 million in 2011. Total liabilities increased by $ 5918 million to $ 96,197 million in 2011. Total debt increased in 2011 by $ 2,695 million to $ 31,320.
Analyzing IBM liquidity we look at current ratio. The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets. The higher the current ratio, the more capable the company is of paying its obligations. IBM current ratio is 1.2 for 2011 meaning that, for every dollar of current liabilities, the company has $1.2 of current assets. This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory.
Debt ratios show the extent to which a firm is relying on debt to finance its investments and operations, and how well it can manage the debt obligation, i.e. repayment of principal and periodic interest. If the company is unable to pay its debt, it will be forced into bankruptcy. On the positive side, use of debt is beneficial as it provides tax benefits to the firm, and allows it to exploit business opportunities and grow. Debt to equity ratio shows the firms degree of leverage, or its reliance on external debt for financing. In this case IBM debt to equity ratio is 1.55.
Whether a company can pay interest on outstanding debt or not is very important. The interest coverage ratio is used to determine this. With an interest coverage ratio if 47, IBM is able to meet its debt obligations.
Profitability is a relative term. It is hard to say what percentage of profits represents a profitable firm, as profits depend on such factors as the position of the company and its products on the competitive life cycle. Earnings per share (EPS) the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. The EPS continued to grow, with diluted earnings per share of $ 13.44 up 15 percent. This shows improved performance. When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time.
Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. IBM profit margin is 20.4 percent. A 20 percent profit margin, for example, means the company has a net income of $ 0.20 for each dollar of sales.
With an asset turnover of 0.9 IBM shows efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
Days in Inventory (Average Age of Inventory) this average number of days it takes for a firm to sell a product it is currently holding as inventory to consumers. A high average age of inventory can indicate that a firm is not properly managing its inventory or that it has a substantial amount of goods that are proving difficult to sell.
Price earnings ratio (P/E) is a valuation ratio of a company's current share price compared to its per-share earnings. In 2011 IBM, P/E ratio was 13.9 generally a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E.
Summary
In conclusion, with all the information demonstrated above and recent company history, I believe IBM to be a good business having potential for growth with the 6 percent it spends annually on research and development of software and patents. It has managed to become a leader in its business and with its continued renewed strategies; it will continue to be successful as long as they manage their risks accordingly.
