IBM Corporation Case Update - Admission/Application Essay Example

1. Return on equity measures the extend to which financial leverage is working for or against common stockholders (Garrison & Noreen). The formula to calculate return of equity is net income divided by total equity. The table below illustrates the return on equity of IBM for the 14 quarters starting in December 1996 and ending March of 2000. QuarterNet incomeTotal EquityROEDec-962023216289.35%Mar-971195199515.99%Jun-971446201097.19%Sep-971359197566.88%Dec-971519198167.67%Mar-9820891886511.07%Jun-981762185779.

48%Sep-9823911863512.83%Dec-981470194337.56%Mar-9923461830612.82%Jun-991494191587.80%Sep-991452200687.24%Dec-992036205119.93%Mar-0020931951810.72%Some of the factors that affect the profitability of IBM include controlling cost, eliminating waste, and increasing the productivity of the workforce. 2. The revenue growth of the company will be analyzed based on the natural year total in order to eliminate the effect of seasonality of the results. The three natural years of IBM that will be evaluated are 1997, 1998, and 1999.

The revenues of IBM in 1999 were $84,548. IBM’s revenues increased by 3.52% in comparison with 1998, while the revenues increased by 7.69% in comparison with 1997. The calculations to obtain these results are illustrated below. 1999199819972118225131237232114420095186052190518823188722031717618173088454881667785082881315960403.53%7.69%The precise number of receivables for the company cannot be calculated based on the given information because the balance sheet of the company does not show sufficient sub classifications of current assets.

The receivables, inventory, and prepaid are all combined into one category of current assets. The gross margin of the company in 1999 was $31,929. In comparison with the previous year the gross margin of the firm increased by 3.42% [(31929-30872) / (30872)]. A line chart illustrating the movement in gross margin between 1999 and 1996 is illustrated below. 3. The earnings per share of IBM during the June 2000 quarter was $1.11. The EPS of IBM increased by 29.41% [(1.10-0.85) / 0.85] in comparison with the previous quarter.

There several reasons that could cause an earning per share to increase. Revenue and net income growth can cause the earnings per share metric to increase. Work Cited PageGarrison, R., Noreen, E. Managerial Accounting (10th ed.). Boston: McGraw-Hill Irwin. 2003