Evaluation of Companies' Net Income - Essay Example

The net income of the company showed a phenomenal growth of 92% in 2008 however it fell sharply by 102.54% in 2009. This was mainly due to the impairment charges of £973mn related to the ex-Armor Holdings business.
Source: Annual Reports of Sulzer, IBM and BAE (Sulzer 2008; Sulzer 2009; BAE 2008; BAE 2009; IBM 2008; IBM 2009)
Sulzer: The net operating cash flow of the company has increased over the last three years. In 2009 it went up by 8.5% mainly because of the reduction in the company’s accounts receivables.
IBM: The net operating cash flow has increased by 29.07% in 2009 as compared to 2007. This is mainly due to an increase in net income, a reduction in accounts receivables, and a high value of deferred taxes.
BAE: The net operating cash flow has a mixed trend declining by 17.9% in 2008 and then growing by 9.1% in 2009. This is due to the company facing difficulties in generating a net income from its operations.
Valuation of Fixed Assets
Sulzer
Upon examination of note 12 to the balance sheet for the year ended 2009 it could be suggested that the machinery and other equipment recorded at a historical cost of CHF677.9mn and accumulated depreciation is CHF477.7mn may not be reflective of the current market values as the depreciation amount is quite high that suggests a long history of this equipment in use. Similar, reasoning could be made for other non-current assets that have a net book value of CHF53.4mn as compared to their historical value of CHF223.2mn (Sulzer 2009).
IBM
The balance sheet for the year ended 2009 reflects that the company has plans, rental machines, and other properties at a historical cost of $39,596 with accumulated depreciation of $25,431. Under Note H to the consolidated financial statement details of assets suggest that the company has land, building, and other equipment however they are not distinguished based on their remaining useful lives, and no other details are provided (IBM 2009). Accumulated depreciation reflects 64% of the historical value which implies that these assets are quite old but the current values of replacement assets surely going to be higher than these values.
BAE
From note 12, it is clear that the accumulated depreciation is more than 50% for plant and machinery, and aircraft. This implies that the remaining useful life of these assets is low and their net book values may not reflect the true value of these assets in their book. The depreciation method used for plant and machinery is a straight-line method that spreads the economic value over 3 to 5 years which means that the accumulated depreciation value implies a high number of years in use by the company and the replacement may not have the same cost values (BAE 2009). Read More