IBM Case
IBM Corporation
In the seven years (since 1994), that Lou Gerstner reigned over IBM, the company’s earnings per share increased an average of 27% per year. This remarkable increase in earnings did not go unnoticed by the securities markets. Indeed, the company’s market value grew from less than $30 billion to over $200 billion during the period.
Use the following financial statement data to:
1. Decompose IBM’s ROE (by quarter) and discuss the factors (and trends) that contribute to
Big Blue’s profitability
2. Evaluate IBM’s Revenue growth, Receivables, and Gross margins and over the period. Be sure to control for seasonality (e.g., compute the same quarter to same quarter change in these items). 3. Evaluate IBM’s Earnings per Share (basic), and Identify the factors most responsible for the increase in IBM’s earnings
Write your answers in Standard English. Be specific in your references, provide details of your computations, and be thorough in your explanations – I cannot read your mind.
EXHIBIT 1
IBM
Selected Earnings Per Share Data
For the Quarters Ended:
Earnings Per Share (from continuing operations)
Analyst Expected Earnings Per Share
Difference
% Surprise
Jun-00
1.06
1.00
0.06
6.00%
Mar-00
0.83
0.77
0.06
7.79%
Dec-99
1.12
1.06
0.06
5.66%
Sep-99
0.90
0.90
0.00%
Jun-99
0.91
0.88
0.03
3.41%
All of the financial data in the tables that follow (except “per share figures”), are in millions.
EXHIBIT 2
IBM
Earnings per Share*
Jun-00
Earings per Share of Common
Stock - Basic
Average Number of Common
Shares Outstanding - Basic
Average Price per Share
$
Mar-00
Dec-99
Sep-99
Jun-99
1.10
$
0.85
$
1.16
$
0.97
1,767.6
$ 109.34
$
1,777.2
111.00
$
1,793.0
102.95
$
1,805.2
123.61
1,812.1
$ 116.48
2 for 1 stock split
5/10/99
Dec-96
Sep-96
* All Data are Adjusted to Reflect stock splits
$
1.32
EXHIBIT 2 (continued)
Sep-97
Earings per Share of Common
Stock - Basic
Average Number of Common
Shares Outstanding - Basic
Average Price per Share
* All
In the seven years (since 1994), that Lou Gerstner reigned over IBM, the company’s earnings per share increased an average of 27% per year. This remarkable increase in earnings did not go unnoticed by the securities markets. Indeed, the company’s market value grew from less than $30 billion to over $200 billion during the period.
Use the following financial statement data to:
1. Decompose IBM’s ROE (by quarter) and discuss the factors (and trends) that contribute to
Big Blue’s profitability
2. Evaluate IBM’s Revenue growth, Receivables, and Gross margins and over the period. Be sure to control for seasonality (e.g., compute the same quarter to same quarter change in these items). 3. Evaluate IBM’s Earnings per Share (basic), and Identify the factors most responsible for the increase in IBM’s earnings
Write your answers in Standard English. Be specific in your references, provide details of your computations, and be thorough in your explanations – I cannot read your mind.
EXHIBIT 1
IBM
Selected Earnings Per Share Data
For the Quarters Ended:
Earnings Per Share (from continuing operations)
Analyst Expected Earnings Per Share
Difference
% Surprise
Jun-00
1.06
1.00
0.06
6.00%
Mar-00
0.83
0.77
0.06
7.79%
Dec-99
1.12
1.06
0.06
5.66%
Sep-99
0.90
0.90
0.00%
Jun-99
0.91
0.88
0.03
3.41%
All of the financial data in the tables that follow (except “per share figures”), are in millions.
EXHIBIT 2
IBM
Earnings per Share*
Jun-00
Earings per Share of Common
Stock - Basic
Average Number of Common
Shares Outstanding - Basic
Average Price per Share
$
Mar-00
Dec-99
Sep-99
Jun-99
1.10
$
0.85
$
1.16
$
0.97
1,767.6
$ 109.34
$
1,777.2
111.00
$
1,793.0
102.95
$
1,805.2
123.61
1,812.1
$ 116.48
2 for 1 stock split
5/10/99
Dec-96
Sep-96
* All Data are Adjusted to Reflect stock splits
$
1.32
EXHIBIT 2 (continued)
Sep-97
Earings per Share of Common
Stock - Basic
Average Number of Common
Shares Outstanding - Basic
Average Price per Share
* All