Analysis Paper
This paper analyzes the IBM’s performance from four perspectives: profitability, risk, efficiency
and stockholder/investor relations. The author would compare all the ratios mentioned above
in 2014, to the performance in 2013, and to the industry average as well.
Profitability
1. Rate of return on total assets: increases from 13.85% in 2013 to 14.35% in 2014. It
indicates IBM is more successful in using assets to earn a profit in 2014. Plus it is much
better than the industry average level 1.6%.
2. Earnings per share: decrease from 15.18 in 2013 to 11.76 in 2014. It means for each
share of IBM’s outstanding common stock, there is 11.76 of net income. It is much
higher than industry average level 2.66.
3. Profit margin ratio: decreases from 16.76% in 2013 to 12.96% in 2014. It means 12.96%
net income is earned on every dollar of IBM’s net sales. It is more than 10 times than
the industry average index 1.0%, even it significantly decreased from last year.
Risk
1. Current ratio: decreases from 1.28 in 2013 to 1.25 in 2014. It indicates IBM has less
ability to pay current liabilities from current assets in 2014. The industry average level is
1.86.
2. Debt ratio: increases from 81.83% in 2013 to 89.78% in 2014. It indicates there is more
proportion of assets financed with debt in IBM this year. It is much higher than
3. Debit to equity ratio: increases from 4.50 in 2013 to 8.78 in 2014. It means IBM is
financing more assets with debt than with equity. It is much higher than the industry
average level 1.46.
Efficiency
1.
Asset turnover ratio: decreases from 0.31 in 2013 to 0.19 in 2014. It indicates IBM uses
its average total assets to generate sales less efficiently in 2014. It is way below the
industry average level 1.6.
2. Inventory turnover: decreases from 4.79 in 2013 to 4.22 in 2014. It indicates IBM sells
its average level of merchandise inventory 4.22 times during 2014. It is way below the
industry average level 17.56.
Stockholder/Investor Relation
1. Price/earnings ration: increases from 12.36 in 2013 to 13.64 in 2014. It shows the stock
market places 13.64 on one dollar of IBM’s earnings. It is lower than the average
industry level, 19.3.
2. Dividend yield: increases from 2.05% in 2013 to 2.69% in 2014. It indicates that the
investor could expect to receive 2.69% of the investment annually as the cash dividends.
It is slightly higher than the average industry level 2.2%
3. Dividend payout: increases from 25.36% in 2013 to 36.65 % in 2014. It shows that the
common shareholders of IBM could expect more than 36% as cash dividends. It is still
lower than the industry average level 42.1%.