IBM's Financial Situation

Paper Summary:

This paper looks at the causes IBM management cites for its steady decline in revenues in 2002 and why, in contrast, the first two quarters of 2003 have shown promise. The paper gives an economic profile of IBM for the years 2002 and 2003 and concludes with a positive economic forecast.

From the Paper:

"According to the balance sheet, IBM's return on investment in 2002 was 10.27 percent. This is based on a Net Income of 3,579 million and 34,844 million in equity and long-term debt. However, this figure is misleading as IBM's market capitalization far exceeds the value of the common stock listed on its balance sheet. In reality, the value of IBM's equity is 150.44 billion, making the total value of capital approximately 170 billion, reducing ROI to approximately 2.1 percent. Finding comparables is difficult in IBM's case, as it derives its income from both hardware and software. A comparable firm for software development would be Dell and Hewlett Packard, which are considered the industry leaders in computer manufacturing. The hegemon of software development is Microsoft, with over 90% of the market. Microsoft has a market capitalization of nearly 306 billion, although its earnings aren't as strong as IBM's as a percentage of share price. However, Microsoft doesn't maintain any long-term debt."

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