Question 1: Decompose IBM’s ROE and discuss the factors (and trends) that contribute to Big Blue’s profitability.
IBM Corp. | Dec-1996 | Dec-1997 | Dec-1998 | Dec-1999 |
Net Income | $2,023.00 | $2,093.00 | $2,346.00 | $2,089.00 |
Shareholder's Equity | $21,628.00 | $19,816.00 | $19,433.00 | $20,511.00 |
ROE RATIO | 9.35% | 10.56% | 12.07% | 10.18% |
Factors and trends that made a significant contribution to Big Blue’s profitability can include revenues, cash flow, gross margins and earnings per share (EPS). When discussing the company’s revenue growth, we can see that the company’s lowest point in their first fiscal quarter in 1997 was ...view middle of the document...
When discussing the company’s revenue growth, we can see that the company’s lowest point in their first fiscal quarter in 1997 was at $17,308,000.00. Afterwards, the firm’s revenue began to increase steadily, peaking in the fourth quarter in 1988 at $25,131,000.00. However, when going from the last quarter in 1988 to the first quarter in 2000 we can see a 23% decrease in revenue ending at $19,348.00 which is more than likely a sign that the peak could have been due to a high point in the year from holiday shopping, for example. The company’s Account Receivables, like it’s gross margins, are at it’s lowest in the first quarter of each year. In 1997 in the first quarter the company’s Account Receivables were at $30,857,000.00 which indicates a significant decrease in sales. It was not surprising to see that the point of the company’s highest Account Receivables was in the fourth quarter of 1999 at $37,324,000.00. Due to the fact that the Accounts Receivables were rising and declining linearly in comparison to sales, we can assume that clients were paying off invoices appropriately and that the difference was mainly influenced by the increase or decrease in company...