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IBM Corporation
In the seven years (since 1994), that Lou Gerstner has reigned over IBM, the company’s earnings per share have increased an average of 27% per year. This remarkable increase in earnings, has not gone unnoticed by the securities markets. Indeed, the company’s market value has grown from less than $30 billion to over $200 billion during this period. Use the following financial statement data to: 1. Decompose IBM’s ROE 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 in your evaluation) 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 * All Data are Adjusted to Reflect stock splits $ 1.10 1,767.6 $ 109.34 $ Mar-00 0.85 1,777.2 111.00 $ Dec-99 1.16 1,793.0 102.95 $ Sep-99 0.97 1,805.2 123.61 $ Jun-99 1.32 $ Mar-99 0.80 1,823.8 88.28 $ Dec-98 1.27 1,839.5 82.91 $ Sep-98 0.80 1,856.9 62.20 $ Jun-98 0.77 1,879.2 57.97 $ Mar-98 0.54 1,946.6 51.12 $ Dec-97 1.08 1,929.6 52.05
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1,812.1 $ 116.48 2 for 1 stock split 5/10/99
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EXHIBIT 2
In the seven years (since 1994), that Lou Gerstner has reigned over IBM, the company’s earnings per share have increased an average of 27% per year. This remarkable increase in earnings, has not gone unnoticed by the securities markets. Indeed, the company’s market value has grown from less than $30 billion to over $200 billion during this period. Use the following financial statement data to: 1. Decompose IBM’s ROE 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 in your evaluation) 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 * All Data are Adjusted to Reflect stock splits $ 1.10 1,767.6 $ 109.34 $ Mar-00 0.85 1,777.2 111.00 $ Dec-99 1.16 1,793.0 102.95 $ Sep-99 0.97 1,805.2 123.61 $ Jun-99 1.32 $ Mar-99 0.80 1,823.8 88.28 $ Dec-98 1.27 1,839.5 82.91 $ Sep-98 0.80 1,856.9 62.20 $ Jun-98 0.77 1,879.2 57.97 $ Mar-98 0.54 1,946.6 51.12 $ Dec-97 1.08 1,929.6 52.05
$
$
$
1,812.1 $ 116.48 2 for 1 stock split 5/10/99
$
$
$
$
$
$
EXHIBIT 2