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Ibm Case

In: Business and Management

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Michael Santiago
IBM Corporation

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 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. As for the company’s cash flow, it’s main impact has been helping alleviate the company’s short term requirements quarterly from 1999 to 2000. IBM’s gross margins were at it’s lowest in the first fiscal quarter of1988 at $6,450,000.00 before increasing to 34% to $9,809,000.00 by the fourth quarter of the same year. The constant slight shifting of gross margins per quarter indicates stability and a positive outlook for the company. As far as the company’s earnings per share (EPS), they began at a relatively low point in the beginning of the each year, but always seems to see a significant increase by the end of the year which indicates heavy sales during holiday periods.

Question 2: Evaluate IBM’s Revenue growth, Receivables, and Gross margins and over the period (be sure to control

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