A Company and Stock Analysis to Assess Market Value and Trends for IBM, Inc.

There are several important things that I have learnt about IBM after going through the first 28 pages. The section paints a very positive picture of the organization in terms of growth, innovation, and competitiveness in the industry ( Bodislav et al., 2018 ). The company has generally focused on building tools needed by the 21 st century businesses. It is quite interesting to realize that IBM is leads in the merging, high value segments of the IT market such as artificial intelligence, analytics, blockchain, security cloud, and quantum computing. Such aspects place the company at a competitive position in the global IT market. 

IBM attributes much of its success to its commitment to research and development. The company has continuously invested in innovative technology, a strategy that has enabled it to improve its competitive position, as well as profit dynamic. For instance, the company has invested more than $5 billion dollars in research and development, making it the leading organization in terms of patents in the United States. The company was granted 9,100 patents in 2018 alone. Of all the patents granted to the company in 2018, more than 1600 were related to artificial intelligence and 1400 to cybersecurity, making it the leader in both areas. Interestingly, the company has been the leading company in US patents for 26 consecutive years. This indicates that the company is the leading innovator in the industry, demonstrating its commitment to building tools needed by businesses in the 21 st century. The company has been rewarded for its continuous investment in innovation through research and development, as it achieved $79.6 billion in revenue and operating earnings per share of $13.81. This shows that the company is poised to lead in the industry. 

I was surprised at how IBM has enabled other businesses to improve the quality of their services and enhance customer experience. The company developed outstanding technologies for United Airlines and Wal-Mart. IBM developed apps for United Airlines growing deployment of iOS devices. The apps have allowed the airline to build complete, integrated mobile platforms that start with a user’s experiences and extend to all of United Airline’s core business processes. As such, the airline has been able to foster better and faster collaboration across diverse teams and time zones, a factor that has allowed the organization to accomplish its primary mission of transporting customers to their destinations on time. This indicates that the company has helped United Airlines to achieve its core mission. Wal-Mart also utilizes IBM’s blockchain technology product, IBM Food Trust, to trace food produce back to its source in seconds. This allows Wal-Mart to identify the source of contaminated food products, enabling it to avoid food products from high risk sources and ensure consumer safety. 

Financial Analysis Tables 

Table 1: Common Size Income Statement ($ in billions) 

Table 2: Balance Sheet Ratios 

Assessing the Financial Performance of IBM 

Common Size Income Statement 

IBM’s total revenue has remained stable for the two years under review. The total revenue increased slightly from $79.139 billion to $79.591 billion. Although the company reported an increase in revenue, the growth was slight. This implies that the company’s sales and expenses remained steady over the two years under review. The company’s cost of goods sold also remained unchanged between 2017 and 2018, as a slight increase was recorded. This means that the company has tried to maintain the level of its expenses. The company’s gross profit dropped slightly from $36.943 in 2017 to 36.939 in 2018. This could be as a result of a slight increase in the cost of operation. The expenses and operating profit of the company also remained unchanged during the period under review, with slight changes reported. It is interesting to realize that the company remained stable during the period. However, the amount of taxes and net income changed considerably. The taxes dropped from $5.642 billion in 2017 to $2.619 billion in 2018. The significant drop in the taxes paid could be due to tax avoidance strategies implemented by the company as a response to the huge amount reported the previous year. The decrease in tax liability is one of the major contributors to the increase in net income in the company. The net income of the company rose from $5.753 billion in 2017 to $8.728 billion in 2018, representing a significant increase in income. 

Balance Sheet Ratios 

IBM’s return on asset increased from 5 percent in 2017 to 7 percent in 2018. This shows that the company utilized its assets efficiently in 2018 compared to 2017. Efficient use of assets is key to success. The company’s return on equity also increased considerably. The ROE increased from 32 percent in 2017 to 52 percent in 2018. This means that the company used its investments effectively to generate earnings. The company’s net profit margin also rose from 7 percent in 2017 to 11 percent in 2018. This indicates that the company extracted more profit from its total sales. The company’s debt to equity ratio remained steady for the two years. This means that company did not borrow more money during the period. The operating margin also remained unchanged during the period. This indicates that the company’s net profits and sales remained changed slightly during the period under review. However, the current ratio dropped from 133 percent to 129 percent. This means that the company’s current assets reduced, reducing the company’s ability to meet its short term obligations. 

Review of Outside Sources 

The external sources also affirm what is in the company’s annual report. Although the company’s financial performance has remained stable for the past two years, it has performed poorly during some periods. The company’s fell by 3.5 percent in the fourth quarter of 2018, affecting the financial performance for the entire period (Greene, 2019). This explains the slight increase in the revenue reported in 2018, compared to the figure reported in 2017. Although the company’s total revenue in 2018 was high, the higher tax rate affected the company’s earnings (Aripaka & Rai, 2018). As such, taxes significantly reduced IBM’s earnings in 2017. The company’s revenues appear to have fluctuated over the period. For instance, the revenues from the various segments dropped affecting the overall outlook of the company. For instance, the Cognitive Solutions segment revenue dropped by 6 percent (Novet, 2018). This affected the overall performance of the company. The information from outside sources explain the minimal profit growth reported by IBM. 

References  

Aripaka, P., Rai, S.(January 19, 2018). IBM returns to growth after six years, but dour forecast hits shares, Reuters , https://www.reuters.com/article/us-ibm-results/ibm-returns-to-growth-after-six-years-but-dour-forecast-hits-shares-idUSKBN1F732Z 

Greene, J.(January 22, 2019). IBM Beats Earnings Expectations Although Its Revenue Again Declines, Wall Street Journal, https://www.wsj.com/articles/ibm-beats-earnings-expectations-although-its-revenue-again-declines-11548193723 

IBM Investor Relations; Financial Information 2018 https://www.ibm.com/investor/financials/financial-reporting.html 

Novet, J. (October 6, 2018). IBM falls after revenue misses, CNBC , https://www.cnbc.com/2018/10/16/ibm-earnings-q3-2018.html 

Bodislav, D. A., Diaconu, A., & Mitriță, M. (2018). The Business-Automated Data Economy Model Shifted Towards Sustainability, 2018 Update. European Journal of Sustainable Development, 7(4), 333-338.