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 …show more content…

d Administrative Expenses
Research and Development
Total Operating Expenses
Operating Income
Other Income (Expense), net
Interest Expense
Income Before Taxes
Income Tax Expense
Net Income

$

$

Sep-97
18,605 $
11,507
7,098
3,932
1,162
5,094
2,004
162
183
1,983
624
1,359 $

Jun-97
18,872 $
11,471
7,401
3,958
1,221
5,179
2,222
137
179
2,180
734
1,446 $

Mar-97
17,308 $
10,716
6,592
3,684
1,069
4,753
1,839
185
172
1,852
657
1,195 $

Dec-96
23,143 $
13,822
9,321
5,093
1,332
6,425
2,896
181
190
2,887
864
2,023 $

Sep-96
18,062
10,804
7,258
4,175
1,115
5,290
1,968
183
172
1,979
694
1,285

Dec-98
25,131 $
15,322
9,809
5,074
1,407
6,481
3,328
187
213
3,302
956
2,346 $

Sep-98
20,095 $
12,628
7,467
4,057
1,240
5,297
2,170
122
160
2,132
638
1,494 $

Jun-98
18,823 $
11,677
7,146
3,812
1,220
5,032
2,114
130
161
2,083
631
1,452 $

Mar-98
17,618 $
11,168
6,450
3,719
1,179
4,898
1,552
150
179
1,523
487
1,036 $

Dec-97
23,723
14,205
9,518
5,060
1,425
6,485
3,033
173
194
3,012
919
2,093

EXHIBIT 4

IBM
Consolidated Statements of Income
For the Years Ended:
Sales
Cost of Goods Sold
Gross Margin
Research and Development Expense
Other Selling, General & Administrative Expense
Total Operating Expenses
Total Operating Income
Other Income (Expense) net
Interest Expense
EBT
Tax on EBT
Net Income

1999
$
87,548
55,619