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IBM Profitability
IBM's profits and ROE increased dramatically over the period of four years, from 1996 to 2000. There were a number of factors that helped contribute to Big Blue's profitability in this case. First, there was a spike in revenues that lead to a stable increase starting in 1998 and really solidifying in 2000. This increase in revenue allowed the gross margin to increase; therefore positively impacting net income for the company, as operating expenses remained relatively stable during the same period. Moreover, cash levels and EPS were other factors that helped boost IBM's profitability.
Moreover, IBM had growth in revenue, receivables, and gross margins. Revenue growth spiked beginning in 1998 and remained stable until 2000. This increased the cash flow the company was able to work with, as operating costs and expenses also remained stable, with no major...
Additionally, the company's receivables increased dramatically over the period of 3 years examined in the evaluation. There was a stable increase of receivable numbers that spiked in December of 1998 and continued to remain above $34,000 (in millions) for the next five quarters. The gross margin reported in the evaluation also had a slow, but steady increase over the years examined. 1996 saw a gross margin for the year at about .60 and this steadily increased over the next four years to peak at 0.64 in 1999. IBM saw a steady incline in the gross margin, which essentially helped boost revenue and earnings per share throughout those later years.
The peak season for IBM seems to be during the holiday season, and thus numbers from December tend to be higher than other periods of the year. Still, numbers…
The peak season for IBM seems to be during the holiday season, and thus numbers from December tend to be higher than other periods of the year. Still, numbers from June of each year also show that the company goes through a second seasonal summer period where sales are up. Therefore, IBM would most likely keep higher levels of inventory during its seasonal peak periods. Also, the receivables are greater during seasonal peak periods. Thus, December and June show the highest revenue. Still, the gross margins of these periods balance out, as there is more money being spent during these seasonal periods as well. Still, since IBM does not have an extreme peak season, unlike other industries like tourism, the company should not be affected by seasonality in terms of making crucial decisions regarding working capital.
IBM also saw an increase in overall earnings per share during this period.
Evaluate IBM's earning per share and identify the factors most responsible for the increase in IBM's earnings. The evaluation shows high levels of percent of surprise from December 1999 to June 2000. There was a huge increase from September 1997 at only $0.69 per share to December 1997, which was at $1.08 per share. This trend of keeping earnings per share above the one dollar mark continued strongly into 1998 and 1999. There are a number of factors that helped increase IBM's earning per share. First, the steady increase in the gross margin over the period of four years would have definitely boosted per share earnings, as it had such a positive impact on overall revenue and cash flow within the company, effectively boosting assets. Seasonal increases in revenue definitely have an impact on the earnings per share, as numbers from December prove higher than any other monthly period. For example December 1998 was at $1.27 earned per share. Yet, at the same time, the summer period also seems to have strong earnings per share as well. June 1999 was actually the highest earned, at $1.32 per share.
IBM Corp From 1996 to 1997, IBM saw their ROE increase between 15 and 25%. During 1998 to the first quarter of 2000, is when they began to steadily decrease from 27 to 18%. These factors are showing how IBM is having trouble increasing their ROE after 1998. This is because the company was experiencing a slowdown in capital spending. In the first quarter of 2000, these figures came in at
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