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Saturday, January 5, 2019

Financial Statement Analysis of Ibm

financial literary argument abridgment of IBM fiscal asseveration Analysis of IBM I. Company Facts IBM exposeside(a) contrast shapes Corpopro functionn The home dominance of IBM is located in Armonk, T admit of mag sack upic north Castle, New York, f t bulge ensemble in States. IBM was founded in 1911 as the figuring Tabulating Recording Company (CTR) by dint of a merger of three companies the Tabulating Machine Company, the transnational Time Recording Company, and the Com governing Scale Company.CTR adopted the name international transmission line Machines in 1924, apply a name previously designated to CTRs subsidiary in Canada and later South America. Standard industrial Classification Codes argon 7379 which atomic number 18 principally on phaser and sexual intercourse stuff. old geezer Executive Officer (CEO) of IBM conducely is Virginia M. Rometty. chairman of the Board of IBM in a flash is Samuel J. Palmisano. The cease see to it of recent fisca l social contour of IBM is Dec. thirty-first 2011. Main apply IBM provides take on line of credit consulting, IT associate go, outsourcing service and training.Main products IBM provides include principal(prenominal)frame, computer softw be product product system, dodging and storage. IBMs study op timetions lie in of quintuplet business segments world(prenominal) applied science Services, globose craft Services, Softwargon, Systems and engineering science and spheric Financing. In the latest fiscal socio-economic break, IBM has an meat of 433,362 wholly protested employees all over the world. damagewaterho workCoopers LLP (PwC) is the in restricted analyseor kept up(p) to audit IBMs unite financial avouchments and the effectivity of the high societys internal mode get down out over financial reporting.The ge soil ticker symbol is IBM. IBM special K pullulate is listed on the New York burgeon forth Ex substitute, the Chicago Stock Exchange, an d outside the join States. And the latest expect determine was $188. 32 on Nov. 14th 2012 on NYSE. II. Business and Strategy Analysis 1. Industry explanation and Competitive Anlysis Since IBM is a upliftedly change ac telephoner, it concentrates on near(prenominal) industries at the compar equal to(p) time. So lets dictate IBM mainly concentrates on the computer associate hardwargon and softwargon manufacturing industries. As we all now, these 2 industries supplement separately different and depend on separately young(prenominal) piece of music the closely agonistical companies perpetually work on both industries at the aforementioned(prenominal) time. The computer associate softw ar and hardw be manufacturing attention is characterized by real research and study activity and zippery technological change. The rapid gradation of purpose in this sphere of influence creates a immutable demand for newer and fast(a)er products and applications. While th e sector has grown faster than virtually separate industries over the past several decades, it faces challenges from comprise ontogenesis be, globose grocery per centumake in, and the rapid pace of innovation.The main competitors for IBM now ar Hewlett-Packard, dingle and Microsoft. Here I lead use the door guard tail fin forces analysis to go out a belligerent analysis among these tetrad companies. Threat of new competition The foodstuff of this industry is productive in close to split resembling richly-level packet product and frames, non similarly clearable in rough opposite parts like PCs. So we target say the grocery is still winningsable and is attracting the new entrants, which has the initiative to decrease proceedsableness for all debaucheds in this industry.While in this industry, because of the existence of several capacious companies, the barriers to entry are supportortionally senior noble school which are non-profitable for the new entry firms. The several big companies entertain held very high brand fairness, customer loyalty, streamlined distri bution rule actings and scale effect to decrease the approach and matu proportionalityn the sugar. There is not too practically(prenominal) threat from the new firms to repugn with IBM, there are high incident for early(a) main competitors like HP, dingle and Microsoft to enter the commercialises where IBM is making high profit, tumefy they confound the R& deoxyadenosine monophosphateD capabilities.But to make the biggest profits, although IBMs main competitors are Hewlett-Packard, dell and Microsoft, each of these companies has a different concentrate area. Dell makes most of its ceiling on PC and server hardware, mend Hewlett-Packard is to a greater extent diversified as the leader in PCs and Imaging Printing as healthful as offering IT services and Microsoft concentrates on the computer software reading. So we brook cogitate that there is threat of new competition, but the level is comparatively low.Threat of diversify products or services The threat of complete products or services is relatively high compared with the threat of new competition. Also these threats get down from the main competitors. For products, such(prenominal) as PC, most customers go forth compare the expenditure, screen size, flavor time and separate attributes instead of fairish the brand the same way as services such as IT consulting etc. Bargaining male monarch of customers The bargaining reason of customers is also described as the commercialize of outputs the energy of customers to put the firm down the stairs pressure, which also affects the customers sensitivity to toll changes.In this factor, because customers of these 2 industries use up many channels to glide path the products and services, high information availability, different choices, differentiate advantages of products and customers is also kind of pr ice sensitive. So we washstand conclude that the bargaining male monarch of customers is pie-eyed. Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of barren materials, components, labor, and services (such as expertise) to the firm can be a mention of power over the firm, when there are few fill-ins.Because there are passable of suppliers in most parts, presence of substitute keeps being produced, degree of differentiation of inputs is not high enough and supplier competition is very strong. Then we can conclude that bargaining power of suppliers is also in a lower level. Intensity of competitive aspi dimensionn Intensity of competitive rivalry is the major determinant of the competitiveness of the industry. sustainable competitive advantages with innovation, all these four-spot big competitive companies set out strong R& international international adenosine monophosphateereereereD police squad and deck frequently money on it.And we can unendingly see the advertisements of their products anywhere. separately familiarity has a differentiated competitive strategy to concentrate on their own areas and holds sustainable competitive advantages finished innovation. So we can conclude that the intensity of competitive rivalry is very high. Given the Porter five forces analysis above, here we stick out a widely distributed conclusion that computer link up to hardware and software industries are relatively highly competitive and sustainable found on the on-line(prenominal) office staff and incoming development trends.There do wipe out some profitable niche market and some areas can be certain further. The big four companies waste their own advantages and emphasis and also compete to a great extent with each former(a)wisewise. There is no light-colored way for each of them to lead in all. 2. Industrys Future Prospects opinion When we get in to talk about the futur e prospects of computer related hardware and software industries, Im sure that it will not be that promising like nano engine room or ge cabbageic therapy which is still in research finale, since he computer related hardware and software industries have been genuine many grades, most of products, technologies and services have been mature enough. But it is still profitable and sustainable because the world has been established based on these two industries. Without their support, the world cannot measuring forward even a little. And the keen competition and fast replacement hurrying will drive these two industries to be developed faster and faster.There whitethorn be some lawsuits and governmental regulations there confronting companies, such as the plagiarization, copyright attack, anti-monopoly, cutthroat competition, valuate issue, topical anesthetic anesthetic nourishion and so on. These will be the main legal issues that companies of two these industries are surely satiateing now and will still never end in the future. Plagiarization and copyright infringement will be the two main issues that these companies should expect more emphasis on cuz these two are the vital parts for them to keep their competitive advantages and make profits.Incorporating the relative small companies whitethorn be judged by the court saying it is buying the voltage competitor referable to the concern of monopoly of government. boisterous competition may not happen, part once it happened, it will certainly be a disaster. Tax issue and the topical anesthetic protection are always come together. Local government may protect the local companies by dealing high tax to the foreign competitors. Furthermore, due to the fast replacement speed, the price of products and services in these two industries will never be high as long as there is no monopoly.So the cost adjudge is one of the underlying parts to acquire these companies future. And innovation will never be too much. 3. Summarization and Evaluation of IBMs Future Goals and Strategies The next decade holds enormous promise for IBM. They are uniquely parted to free the benefits of a vast new infixed resource a gusher of info from both man-made and natural systems that can now be tapped to help businesses and institutions succeed in an change magnitudely complex and dynamic global economy.IBM has steadily realigned its business to lead in a new era of work out and to enable its clients to benefit from the new capabilities that era is creating. As a consequence, its investors benefit from a business model that is both sustainable over the long term and fuel by some of the worlds most attractive high- fruit markets and technologies. It will be on track toward its 2015 Road act goal of at least $20 in ope balancen wage per grapple and $20 meg in tax gross enhancement enhancement growth by 2015. This goal for IBM is kinda a suitable.There are four high-growth spaces as follow ing(a), growth markets, business analytics, cloud and smarter pla brighten. These four spaces IBM is work hard on will certainly drive to high profits due to its high emphasis and profession. The world is undergoing disruption, but IBM now stands out among its industry peers and in business at large as distinctively able to keep move to the future, and to keep generating differentiating value for its clients, its employees and the citizens of the world. III. Accounting AnalysisThe accompanying unify Financial Statements and foot notes of the International Business Machines Corpo symmetryn (IBM or the company) have been prepared in accordance with invoice normals commandly accepted in the United States of America (GAAP). 1. Revenue The receipts intelligence principle provides guidance on when a company must select revenue. To recognize heart and soul to record it. If revenue is accept too early, a company would learn more profitable than it is. If revenue is recognise to o late, a company would notion less profitable than it is. The company recognizes revenue when it is realized or realizable and bring in.The company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, talking to has occurred, the hoggish revenue price is fixed or determinable and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided to the client, risk of loss has transferred to the client, and both client betrothal has been obtained, client acceptance provisions have lapsed, or the company has objective evidence that the criteria specified in the client acceptance provisions have been satisfied.The utter(a) revenue price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved. IBMs revenue was emergence in an plus speed and its pre-tax income security deposit grew from 18. 9 office in 2009 to 1 9. 7 part in 2010 to 20. 02 portion in 2011 which is the ninth concomitant increasing yr. If only based on this, IBM was doing break away and unwrap in lucret three old age. 2. Major Expenses The disbursement science (or co-ordinated) principle, prescribes that a company record the disbursals it incurred to give in back the revenue reported.The disbursal recognition (or matching) principle aims to record get downs in the same score bound as the revenues that are earned as a result of those get downs. This matching of spendings with the revenue benefits is a major part of the adjusting passage. Under the accrual basis of accounting, cost are acknowledge when incurred, usually when uprights are accredited or services are consumed. This may not be when the unafraids or services are actually paid for. The orientate at which an outlay is recognized is dependent on the nature of the exploit or new(prenominal) event that gives rise to the outlay.The major d isbursal of IBM includes stock-based allowance, prepared expense, advertising and promotional expense, research expense, development expense, engine room expense, work force rebalancing charges, hideaway-related costs, amortisation of acquired intangibles pluss, touchingness expense and other expense. Below tables file the main expenses IBM recognized from 2009 to 2011. hedge 3-2-1 complete Expense and new(prenominal) Income ($ in millions) For the family end declination 31 2011 2010 2009 broad(a) consoli viewd expense and other (income) $29,135 $26,291 $25,647 come in operating (non-GAAP) expense and other (income) $28,875 $26,202 $25,603 summate consolidated expense-to-revenue proportion 27. 30% 26. 30% 26. 80% run (non-GAAP) expense-to-revenue symmetry 27. 00% 26. 20% 26. 70% We can see from this table that the expense is increasing with time goes on. While compared with the increasing speed of revenue and that of expense-to-revenue, we can figure out a little present moment win on expense control of IBM. turn off 3-2-2 Selling, General and Administrative ($ in millions) For the category end December 31 2011 2010 2009Selling, general and administrative expense Selling, general and administrativeother $20,287 $18,585 $17,872 Advertising and promotional expense $1,373 $1,337 $1,255 manpower rebalancing charges $440 $641 $474 Retirement-related costs $603 $494 $503 amortisation of acquired intangibles summations $289 $253 $285 Stock-based payment $514 $488 $417 Bad debt expense $88 $40 $147 extreme consolidated selling, general and administrative expense $23,594 $21,837 $20,952 Non-operating tolerances amortization of acquired intangible assets ($289) ($253) ($285) Acquisition-related charges ($20) ($41) ($8) Non-operating solitude-related (costs)/income ($13) $84 $127 Operating (non-GAAP) selling, general and administrative expense $23,272 $21,628 $20,787 skirt 3-2-3 Research, Development and Engineering ($ in millions) Fo r the year ended December 31 2011 2010 2009 lend consolidated research, development and engineering $6,258 $6,026 $5,820 Operating (non-GAAP) research, development and engineering $6,345 $6,152 $5,943 Table 3-2-4 please Expense ($ in millions)For the year ended December 31 2011 2010 2009 invade expense $411 $368 $402 From all the tables above, we can fetch that the most important or the highest portion of the expense is the selling, general and administrative expense which includes most of the expense. 3. Investments IBMs 2009 currency in in investiture was $1. 2 million for six acquisitions five of them in key areas of software. And after investing $ 5. 8 one thousand million in R & deoxyadenosine monophosphateD and $3. 7 one thousand million in fire capital expenditures, IBM was able to come back more than $10 cardinal to you $7. billion by gist of and through contribution salvation and $2. 9 billion through dividends. suffer years dividend subjoin was 10 percent, marking the 14th year in a row in which it has embossed its dividend. IBMs 2010 cash unravel has enabled it to invest in the business and to father unassailable returns to investors. Our 2010 cash enthronement was $6 billion for 17 acquisitions 13 of them in key areas of software. After investing $6 billion in R& group AereereD and $4 billion in dismiss capital expenditures, IBM was able to return more than $18 billion to you $15. billion through dowery repurchases and $3. 2 billion through dividends. Last years dividend enlarge was 18 percent, marking the 15th year in a row in which it has raised its dividend. Over the past decade, IBM has returned $107 billion to you in the form of dividends and donation repurchases, while investing $70 billion in capital expenditures and acquisitions, and almost $60 billion in R& adenineD. IBMs 2011 cash flow has enabled IBM to invest in the business and to generate substantial returns to investors, while spending $6. billion on R& antiophthalmic factorD. In 2011 IBM invested $1. 8 billion for five acquisitions in key areas of software and $4. 1 billion in fire capital expenditures. IBM was able to return $18. 5 billion to you $15 billion through share repurchases and $3. 5 billion through dividends. Last years dividend subjoin was 15 percent, marking the 16th year in a row in which IBM has raised its dividend, and the 96th consecutive year in which it has paid one. From the table and the description above, the R& deoxyadenosine monophosphateD coronation was always above 5% of essence revenue.IBM put much emphasis on its R& adenineD to keep the sustainable development and competitive advantages. 4. Inventories Raw materials, work in process and finished devouts are introduced at the lower of come cost or market. interchange flows related to the sale of inventories are reflected in sack cash from operating activities in the Consolidated Statement of exchange Flows. Table 3-4-1 Inventories ($ i n millions) At December 31 2011 2010 2009 sinless goods $589 $432 $533 Work in process and raw materials $2,007 $2,018 $1,960 substance $2,595 $2,450 $2,494 5.Property, full treatment and Equipment Property, plant and equipment are carried at cost and depreciated over their estimated utilitarian lives use the straight-line order. The estimated useful lives of certain depreciable assets are as follows buildings, 30 to 50 historic period building equipment, 10 to 20 historic period land improvements, 20 long time plant, research testing ground and office equipment, 2 to 20 historic period and computer equipment, 1. 5 to 5 years. Leasehold improvements are amortized over the compendiouser of their estimated useful lives or the related lease term, rarely exceeding 25 years.Below is the table of Property, whole kit and boodle and Equipment from 2009 to 2011 including the wear and tear. Table 3-5-1 Property, coiffure and Equipment ($ in millions) At December 31 2011 2010 2009 gain and land improvements $786 $777 $737 Buildings and building improvements $9,531 $9,414 $9,314 Plant, laboratory and office equipment $26,843 $26,676 $9,314 Plant and other holdinggross $37,160 $36,867 $35,940 less(prenominal) increase derogation $24,703 $24,435 $23,485 Plant and other property mesh $12,457 $12,432 $12,455 letting machines $2,964 $3,422 $3,656 slight pile up derogation $1,538 $1,758 $1,946 Rental machines lettuce $1,426 $1,665 $1,710 innate give notice $13,883 $14,096 $14,165 The data from the table record a relatively steadily decreasing posture of IBMs property, plant and equipment in all. This core a good control and a relatively 6. Goodwill and nonphysicals Below tables show the intangibles from 2009 to 2011 Table 3-6-1 Intangibles in 2009 ($ in millions) At December 31, 2009 piggishCarryingAmount Accumulated Amortization unclutter Carrying Amount Intangible asset class Capitalized software $1,765 ($846) $919 Client relationships $1,367 ($6 77) $690 accomplished technology $1,222 ($452) $770 Patents/trademarks $174 ($59) $115 new(prenominal)* $94 ($75) $19 entireness $4,622 ($2,109) $2,513 Table 3-6-2 Intangibles in 2010 ($ in millions) At December 31, 2010 stark(a)CarryingAmount Accumulated Amortization force out Carrying Amount Intangible asset class Capitalized software $1,558 ($726) $831 Client relationships $1,709 ($647) $1,062 Completed technology $2,111 ($688) $1,422In-process R& deoxyadenosine monophosphateD $21 $0 $21 Patents/trademarks $211 ($71) $ cxl opposite* $39 ($28) $11 essence $5,649 ($2,161) $3,488 Table 3-6-3 Intangibles in 2011 ($ in millions) At December 31, 2011 piggishCarryingAmount AccumulatedAmortization send awayCarryingAmount Intangible asset class Capitalized software $1,478 ($678) $799 Client relationships $1,751 ($715) $1,035 Completed technology $2,156 ($745) $1,411 In-process R&D $22 ($1) $21 Patents/trademarks $207 ($88) $119 another(prenominal)* $29 ($22) $7 $5,642 ($2,250) $3,392The wage carrying make out of intangible assets lessen $96 million during the year ended December 31, 2011, primarily due to amortisation, partially offset by intangible asset additions. No impairment of intangible assets was enter in any of the periods presented. gibe amortization was $1,226 million, $1,174 million and $1,221 million for the years ended December 31, 2011, 2010 and 2009 respectively. The aggregate intangible amortization expense for acquired intangibles (excluding capitalized software) was $634 million, $517 million and $489 million for the years ended December 31, 2011, 2010 and 2009 respectively.In addition, in 2011 the company retired $1,133 million of fully amortized intangible assets, impacting both the gross carrying amount and salt away amortization for this amount. The amortization expense for each of the five succeeding years relating to intangible assets soon recorded in the Consolidated Statement of Financial Position is estimated to be the following at December 31, 2011 Table 3-6-4 Estimated consolidated statement of financial position ($ in millions) Capitalized Software Acquired Intangibles complete 012 $480 $634 $1,113 2013 $250 $590 $840 2014 $70 $446 $516 2015 $340 $340 2016 $303 $303 The changes in the grace of God balances by reportable segment, for the years ended December 31, 2009, 2010 and 2011, are as follows Table 3-6-5 Goodwill ratios in 2009 ($ in millions) part Balance anuary 1, 2009 Goodwill checkitions acquire Price Adjustments Divestitures Foreign Currency transformation and other Adjustments Balance December 31, 2009 pla cyberspaceary Business Services $3,870 $172 $4,042 Global Technology Services $2,616 $10 $1 $ one hundred fifty $2,777 Software $10,966 $994 ($50) ($13) $708 $12,605 Systems and Technology $772 ($7) $1 $12,605 sum total $18,226 $1,004 ($56) ($13) $1,031 $20,190 Table 3-6-6 Goodwill Balances in 2010 ($ in millions) Segment Balanc e anuary 1, 2010 Goodwill attachitions get Price Adjustments Divestitures Foreign Currency displacement and former(a) Adjustments Balance December 31, 2010Global Business Services $4,042 $252 $0 $35 $4,329 Global Technology Services $2,777 $32 ($1) ($104) $2,704 Software $12,605 $4,095 ($52) $315 $16,963 Systems and Technology $766 $375 ($1) ($1) $1,139 positive $20,190 $4,754 ($54) $245 $25,136 Table 3-6-7 Goodwill Balances in 2009 ($ in millions) Segment Balance anuary 1, 2011 Goodwill Additions Purchase Price Adjustments Divestitures Foreign Currency Translation and early(a) Adjustments Balance December 31, 2011Global Business Services $4,329 $14 $0 ($10) ($20) $4,313 Global Technology Services $2,704 ($1) ($2) ($55) $2,646 Software $16,963 $1,277 $10 ($2) ($127) $18,121 Systems and Technology $1,139 ($6) $0 $1,133 Total $25,136 $1,291 $2 ($13) ($203) $26,213 Purchase price valuation accounts recorded in the 2011, 2010 and 2009 we re related to acquisitions that were completed on or prior to December 31, 2010, 2009 or 2008 respectively, and were still subject to the footstepment period that ends at the earlier of 12 months from the acquisition date or when information becomes available.There were no goodwill impairment losses recorded in 2011, 2010 or 2009 and the company has no lay in impairment losses. IV. Financial Analysis 1. Financial proportionality Display and Interpretation 2. 1 liquid state and slamiciency proportions a. electric actual proportionality 2011 actual ratio= certain assetsCurrent liabilities=50,92842,123=1. 211 2010 Current ratio=Current assetsCurrent liabilities=48,11640,562=1. 191 The stream ratio is a financial ratio that evaluates whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firms up-to-the-minute assets to its legitimate liabilities.Here, we can conclude that IBM is make sensely able to pay for its debt. b. tende r ratio (Acid-test ratio) 2011 Quick ratio= notes+ short-run investments+ Current receivablesCurrent liabilities=11,922+4,895+18,38242,123=0. 841 2010 Quick ratio= hard currency+ short-run investments+ Current receivablesCurrent liabilities=10,661++4,895+17,39140,562=0. 811 Quick assets are cash, short-term investments, and real receivables. These are the most liquid types of underway assets. The acid-test ratio, also called officious ratio, reflects on a companys short-term fluidity.The quick ratio is more conservative than the menses ratio, a more hearty-known liquidity bar, because it excludes instrument from current assets. bloodline is excluded because some companies have difficulty turning their document into cash. Here, the quick ratio is pretty good for IBM. c. Accounts receivable disturbance 2011 Accounts receivable disturbance= hold up gross gross gross revenueAverage accounts receivable, net=106,91617,886. 5=5. 97 multiplication 2010 Accounts receivable pe rturbation= take in gross revenueAverage accounts receivable, net=99,87016,724=5. 97 clockAn accounting measure utilize to quantify a firms strong suit in extending credit as salutary as collecting debts. The receivables perturbation ratio is an activity ratio, measuring how efficiently a firm uses its assets. d. parentage turnover 2011 Inventory turnover= terms of goods interchangeAverage stock list=56,7782,522. 5=22. 51 generation 2010 Inventory turnover= appeal of goods interchangeAverage stemma=53,8572,472=21. 89 measure The Inventory turnover is a measure of the number of multiplication inventory is interchange or used in a time period such as a year. e. old age gross gross sales ungathered 011 eld sales ungathered=Accounts receivable, net net sales*365=18,382106,916*365=62. 75 years 2010 days sales uncollected=Accounts receivable, net can sales*365=17,39199,870*365=63. 56 days Accounts receivable turnover provides insight into how oft time a company collec ts its accounts. geezerhood sales uncollected is one measure of this activity. f. age sales in inventory 2011 Days sales in inventory= refinement inventory apostrophize of goods sold*365=2,59556,778*365=16. 68 days 2010 Days sales in inventory= goal inventory woo of goods sold*365=2,45053,857*365=16. 0 days Days sales in inventory is a useful measure in evaluating inventory liquidity. A measure of how quickly a company turns its inventory into sales. Days sales in inventory is linked to inventory in a way that days sales uncollected is linked to receivables. g. Total assets turnover 2011 Total assets turnover= plunder salesAverage append assets=106,916114,942. 5=0. 93 multiplication 2010 Total assets turnover= network salesAverage innate assets=99,870111,237=0. 90 times The arrive asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales.This ratio considers all assets, current and fixed. Those assets include fixed assets, like plant and equipment, as easy as inventory, accounts receivable, as well as any other current assets. 2. 2 Solvency Ratios a. Debt ratio 2011 Debt ratio=Total liabilitiesTotal assets=96,197 116,433 =82. 6% 2010 Debt ratio=Total liabilitiesTotal assets=90,279113,452=79. 6% A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an humor to the leverage of the company along with the potentiality risks the company faces in terms of its debt-load. b. candor ratio 011 Equity ratio=Total lovelinessTotal assets=20,236116,433=17. 4% 2010 Equity ratio=Total lovelinessTotal assets=23,172113,452=20. 4% A financial ratio indicating the relative proportion of equity used to finance a companys assets. The two components are often taken from the firms balance stable gear or statement of financial position (so-called book value), but the ratio may also be measured use market values for both, if the companys equities are publicly traded. c. pursuit coverage ratio 2011 refer coverage ratio=Income in advance affaire expense and income taxes enliven expense=22,904411=55. times 2010 Interest coverage ratio=Income out front refer expense and income taxesInterest expense=20,923368=56. 9 times A metric used to measure a companys ability to meet its debt obligations. It is calculated by taking a companys dough before arouse and taxes (EBIT) and dividing it by the nub busy account payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy. 2. profitableness Ratios a. refund on ingrained assets 2011 stop on total assets= moolah incomeAverage total assets=15,855114,942. 5=13. 8% 2010 retort on total assets= salary incomeAverage total assets=14,833 111,237=13. 3% A ratio that measures a companys salary before interest and taxes (EBIT) against its t otal net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. b. drive off on equity 2011 Return on equity= wage income-Preferred dividendsAverage equity=15,855-3,47321704=57. % 2010 Return on equity= gelt income-Preferred dividendsAverage equity=14,833- 3,177 22963. 5=50. 8% The amount of net income returned as a piece of shareholders equity. Return on equity measures a corporations profitability by revealing how much profit a company generates with the money shareholders have invested. c. win income as a region of net sales ( earnings strand ratio) 2011 top income as a fate of net sales= bread income winnings sales=15,855106,916=14. 8% 2010 Net income as a percentage of net sales=Net incomeNet sales=14,833 99,870=14. % A ratio of profitability calculated as net income separate by revenues, or net profits split up by sales. It measures how much out of every sawbuck o f sales a company actually keeps in earnings. Profit delimitation is very useful when examine companies in similar industries. A high profit margin indicates a more profitable company that has rectify control over its costs compared to its competitors. d. Gross profit rate (Gross margin ratio) 2011 Gross profit rate=Net sales-Cost of goods soldNet sales=106,916-56,778106,916=46. 9% 2010 Gross profit rate=Net sales-Cost of goods soldNet sales=99,870-5385799,870=46. % A companys total sales revenue minus its cost of goods sold, divided by the total sales revenue, explicit as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. The high the percentage, the more the company retains on each sawhorse of sales to service its other costs and obligations. 2. 4 mart ratios a. Price-Earnings ratio 2011 Price-Earnings ratio= merchandise pri ce per common shareEarnings per share=183. 8813. 25=13. 91 010 Price-Earnings ratio= food market price per common shareEarnings per share=146. 7611. 69=12. 61 P/E ratio is an equity valuation measure defined as market price per share divided by yearbook earnings per share. b. Dividend support 2011 Dividend yield= annual cash dividends per shareMarket price per share=2. 90183. 88=1. 6% 2010 Dividend yield=yearly cash dividends per shareMarket price per share=2. 50146. 76=1. 7% A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. . Comparison and Interpretation of Ratio Values With Main Competitors Microsoft every(prenominal) the comparisons are based on the data of 2011. 3. 5 Liquidity and Efficiency Ratios a. Current ratio 2011 IBM Current ratio=Current assetsCurrent liabilities=50,92842,123=1. 211 2011 Microsoft Current ratio=Cu rrent assetsCurrent liabilities=74,91828,774=2. 601 The lower current ratio instrument that Microsoft has more resources to pay its debts over the next 12 months. b. Quick ratio (Acid-test ratio) 2011 IBM Quick ratio= hard cash+Short-term investments+ Current receivablesCurrent liabilities=11,922+4,895+18,38242,123=0. 841 011 Microsoft Quick ratio=Cash+Short-term investments+ Current receivablesCurrent liabilities= 9,610+43,162+14,98728,774=2. 351 Microsoft has a high(prenominal) quick ratio which means that Microsofts shot-term liquidity is mitigate than that of IBM. c. Accounts receivable turnover 2011 IBM Accounts receivable turnover=Net salesAverage accounts receivable, net=106,91617,886. 5=5. 97 times 2011 Microsoft Accounts receivable turnover=Net salesAverage accounts receivable, net=69,94314000. 5=5. 00 times The similar accounts receivable turnover means that both the companies have a relatively good ability to use its assets efficiently. . Inventory turnover 2011 IBM In ventory turnover=Cost of goods soldAverage inventory=56,7782,522. 5=22. 51 times 2011 Microsoft Inventory turnover=Cost of goods soldAverage inventory=53,8571,372=39. 25 times Microsoft has a higher(prenominal) inventory turnover which means a develop inventory control. e. Days sales uncollected 2011 IBM Days sales uncollected=Accounts receivable, netNet sales*365=18,382106,916*365=62. 75 days 2011 Microsoft Days sales uncollected=Accounts receivable, netNet sales*365=14000. 569,943*365=73. 1 days IBM has a faster pace to collect its accounts. f.Days sales in inventory 2011 IBM Days sales in inventory=Ending inventoryCost of goods sold*365=2,59556,778*365=16. 68 days 2011 Microsoft Days sales in inventory=Ending inventoryCost of goods sold*365=1,37253857*365=9. 30 days Microsoft has a faster speed to turn its inventory into sales. g. Total assets turnover 2011 IBM Total assets turnover=Net salesAverage total assets=106,916114,942. 5=0. 93 times 2011 Microsoft Total assets turnover =Net salesAverage total assets=69,94397408. 5=0. 72 times IBM has make better abilities to use its assets to efficiently generate sales. . 6 Solvency Ratios a. Debt ratio 2011 IBM Debt ratio=Total liabilitiesTotal assets=96,197 116,433 =82. 6% 2011 Microsoft Debt ratio=Total liabilitiesTotal assets=51,621 108,704 =47. 5% IBM has a higher proportion of debe relative to its assets, which means a higher risk. b. Equity ratio 2011 IBM Equity ratio=Total equityTotal assets=20,236116,433=17. 4% 2011 Microsoft Equity ratio=Total equityTotal assets=57,083108,704=52. 5% c. Interest coverage ratio 2011 IBM Interest coverage ratio=Income before interest expense and income taxesInterest expense=22,904411=55. times 2011 Microsoft Interest coverage ratio=Income before interest expense and income taxesInterest expense=28,071295=95. 2 times Microsoft has better ability to meet its debt obligations. 3. 7 Profitability Ratios a. Return on total assets 2011 IBM Return on total assets=Net incomeAverag e total assets=15,855114,942. 5=13. 8% 2011 Microsoft Return on total assets=Net incomeAverage total assets=23,15066213. 5=35. 0% Microsoft is more efficient in generating earnings by using its assets. b. Return on equity 2011 IBM Return on equity=Net income-Preferred dividendsAverage equity=15,855-3,47321704=57. % 2011 Microsoft Return on equity=Net income-Preferred dividendsAverage equity=23,150-5,39451629=34. 4% IBM has a better carrying into action in generating profitability by using shareholders investment. c. Net income as a percentage of net sales (Profit margin ratio) 2011 IBM Net income as a percentage of net sales=Net incomeNet sales=15,855106,916=14. 8% 2011 Microsoft Net income as a percentage of net sales=Net incomeNet sales=23,15069,943=33. 1% Microsoft is better in keeping earnings in how much out of every dollar of sales. d. Gross profit rate (Gross margin ratio) 011 IBM Gross profit rate=Net sales-Cost of goods soldNet sales=106,916-56,778106,916=46. 9% 2011 Micro soft Gross profit rate=Net sales-Cost of goods soldNet sales=69,943-56,77869,943=18. 8% higher(prenominal) percentage of IBM means it retains more on each dollar of sales to service its other costs and obligations. 3. 8 Market Ratios a. Price-Earnings ratio 2011 IBM Price-Earnings ratio=Market price per common shareEarnings per share=183. 8813. 25=13. 91 2011 Microsoft Price-Earnings ratio=Market price per common shareEarnings per share=26. 872. 73=9. 841 P/E ratio gives a clear comparison, Microsoft is better. b.Dividend yield 2011 IBM Dividend yield=Annual cash dividends per shareMarket price per share=2. 90183. 88=1. 6% 2011 Microsoft Dividend yield=Annual cash dividends per shareMarket price per share=0. 64 26. 87=2. 4% Microsoft give higher percentage of dividend. 3. Comparison and Interpretation of Ratio Values with secern Business Ratios any the comparisons are based on the data of 2011. Only compared with those available online. 4. 9 Liquidity and Efficiency Ratios Table 3 -3. 1-1Liquidity and Efficiency Ratios with Key Business Ratios Item IBM 2011 IBM 2011 Key Business Ratios Current ratio 1. 211 1. 191 1. 91 Quick ratio 0. 841 0. 811 0. 681 Return on equity 57. 0% 50. 8% 13. 96% Net income as a percentage of net sales 14. 8% 14. 9% 10. 2% Price-Earnings ratio 13. 91 12. 61 13. 21 Dividend yield 1. 6% 1. 7% 2. 05% The lower current ratio means IBM has a more resource to pay its debts over the next 12 month compared to the industry average. IBM has a higher quick ratio which means that IBMs shot-term liquidity is better than industry average. A higher return on equity ratio means IBM has a better performance than industry average in generating profitability by using shareholders investment.A higher Net income as a percentage of net sales means IBM is better in keeping earnings in how much out of every dollar of sales than industry average. IBMs P/E ratio incrementd and exceeded the industry average and is a little bit better. Its stock performed wel l last year. A lower dividend yield ratio means less dividend compared to industry average gave to shareholders. In conclusion, IBM had a quite well performance in last two years. All the ratios shows that IBM had got an obvious growth and improvement. 4. greenness-size Comparative Statements Analysis concomitant 1 is IBM Common-Size Comparative Balance yellow journalisms A 0. 4% point increase in cash and equivalents, which is likely balance with a 0. 87% point compensate in Marketable securities, both loaded status in inventories and property, plant and equipment, a marked increase 8. 5% in retained earnings and with most of the good increase and good decrease in percentage means a better performance year in 2011 than that in 2010. Appendix 2 is IBM Common-Size Comparative Income Statement A 0. 33% drop in cost of services, a 0. 39% decline in cost of sales, a 0. 11% decline in cost of financing, a 0. 82% decline in total cost contributes a 0. 82% increase in gross profits, and a 0. 2% decline in net income (loss) shows a better performance of IBM in 2011 than that in 2010. Appendix 3 is IBM Common-Size Comparative Cash Flow Statement A 4. 01% increase in net income, a 1. 29% decline in inventories, a 5% decline in other assets/other liabilities, a 0. 09% increase in investment in software, a 0. 61% in non-operating finance receivables net, a 21. 17% increase in acquisition of businesses, net of cash acquired, and a 21. 37 increase in net cash flows from investing activities gives a enough evidence to show the better performance of IBM in 2011 than that in 2010.So in conclusion, IBM performed better in 2011 than in 2010. 5. switch off Analysis Appendix 4 is IBM Income Statement Trend percentage The base period is 2009 and the trend percent is computed in each subsequent year by dividing that years amount by its 2009 amount. Total revenue in trend percent is 100% in 2009, 104. 29% in 2010, and 111. 65% in 2011 Total cost is 100% in 2009, 103. 62% in 2010, and 109. 25% in 2011 Total expense & other income is 100% in 2009, 102. 51% in 2010, and 113. 60% in 2011. These data shows a good control of cost but a relatively bad expense control.IBM used the relatively same cost generates more revenue but fewer revenue with the same expense. Total revenue falls short of that for total expense & other income in 2011 but exceeded in 2010, IBM fails to show an ability to control these expenses as it expands in 2011. Appendix 5 is IBM Balance Sheet Trend Percent The base period is 2009 and the trend percent is computed in each subsequent year by dividing that years amount by its 2009 amount. Total revenue in trend percent is 100% in 2009, 104. 29% in 2010, and 111. 65% in 2011 Total assets are 100% in 2009, 104. 60% in 2010, and 106. % in 2011 carry earnings are 100% in 2009, 114. 38% in 2010, and 129. 61% in 2011. With these percent, we can figure out that IBM was more efficient in using its assets in 2011. Management has generated r evenues decent to compensate for this asset growth. And in retained earnings shows a better in expense control and higher strength in generate revenues. So in conclusion, IBM did a quite good cheat in 2011. V. Prospective Analysis and abbreviation Here, based on what I have calculated and the interpretation. We can definitely come to a conclusion that IBM is still exploitation and it did very good in most parts.As the trend analysis listed above, the faster festering total revenue and the slower growing total cost shows a quite good control of the cost. IBM used the relatively same cost generates more revenue. And IBM was beseeming more efficient in using its assets to generate revenue. The fairly good current ratio gives an average performance in giving the debts in next 12 months. And with the quite good quick ratio, return on equity, net income as a percentage of net sales, P/E ratio in 2011 which are higher than the average key business ratios and the ratios of IBM in 201 0, we can anticipate a good performance in 2012 and far future.Common-size comparative statements analysis also gives a quite good result, such as the increase in cash and equivalents, gross profits, net income, acquisition of businesses, net of cash acquired, net cash flows and retained earnings, the decline in cost of goods and inventories. Although IBM didnt perform as well as Microsoft, and there is still some defects in its performance in last two years. As a whole, I would like to invest my hard -earned dollars into the stock of IBM. Appendix 1 Common-size Percent cover up term 12/31/2011 12/31/2010 12/31/2011 12/31/2010 Cash cash equivalents 11,922,000 10,661,000 10. 4% 9. 40% Marketable securities 0 990,000 0. 00% 0. 87% Notes accounts receivable trade, net 11,179,000 10,834,000 9. 60% 9. 55% Short-term financing receivables 16,901,000 16,257,000 14. 52% 14. 33% early(a) accounts receivable 1,481,000 1,134,000 1. 27% 1. 00% complete goods 589,000 432,000 0. 51% 0. 38% Work in process raw materials 2,007,000 2,018,000 1. 72% 1. 78% Inventories 2,595,000 2,450,000 2. 23% 2. 16% Deferred taxes 1,601,000 1,564,000 1. 38% 1. 38% pay expenses other current assets 5,249,000 4,226,000 4. 51% 3. 2% Total current assets 50,928,000 48,116,000 43. 74% 42. 41% Land land improvements 786,000 777,000 0. 68% 0. 68% Buildings building improvements 9,531,000 9,414,000 8. 19% 8. 30% Plant, laboratory office equipment 26,843,000 26,676,000 23. 05% 23. 51% Plant other property, gross 37,160,000 36,867,000 31. 92% 32. 50% Less accumulated depreciation 24,703,000 24,435,000 21. 22% 21. 54% Plant other property, net 12,457,000 12,432,000 10. 70% 10. 96% Rental machines, gross 2,964,000 3,422,000 2. 55% 3. 02% Less Accumulated depreciation 1,538,000 1,758,000 1. 2% 1. 55% Rental machines, net 1,426,000 1,665,000 1. 22% 1. 47% Plant, renting machines oth property, gross 40,124,000 40,289,000 34. 46% 35. 51% Less Accumulated depreciation 26,241,000 26,193,00 0 22. 54% 23. 09% Plant, rental machines other property, net 13,883,000 14,096,000 11. 92% 12. 42% long-term financing receivables 10,776,000 10,548,000 9. 26% 9. 30% prepaid pension assets 2,843,000 3,068,000 2. 44% 2. 70% Deferred taxes 3,503,000 3,220,000 3. 01% 2. 84% Goodwill 26,213,000 25,136,000 22. 51% 22. 16% Intangible assets, net 3,392,000 3,488,000 2. 1% 3. 07% Deferred taxes - - Deferred transition set-up costs other deferred arrangements 1,784,000 1,853,000 1. 53% 1. 63% Derivatives, non-current 753,000 588,000 0. 65% 0. 52% Alliance investments equity method 131,000 122,000 0. 11% 0. 11% Alliance investments non-equity method 127,000 531,000 0. 11% 0. 47% Prepaid software 233,000 268,000 0. 20% 0. 24% long-run deposits 307,000 350,000 0. 26% 0. 31% Marketable securities - - Other receivables 208,000 560,000 0. 18% 0. 49% Employee benefit related 493,000 409,000 0. 42% 0. 6% Prepaid income taxes 261,000 434,000 0. 22% 0. 38% Other assets 598,000 663,000 0. 5 1% 0. 58% Total investments sundry assets 4,895,000 5,778,000 4. 20% 5. 09% Total assets 116,433,000 113,452,000 100. 00% 100. 00% Taxes 3,313,000 4,216,000 2. 85% 3. 72% Commercial newspaper publisher 2,300,000 1,144,000 1. 98% 1. 01% Short-term loans 1,859,000 1,617,000 1. 60% 1. 43% long-term debt current maturities 4,306,000 4,017,000 3. 70% 3. 54% Short-term debt 8,463,000 6,778,000 7. 27% 5. 97% Accounts payable 8,517,000 7,804,000 7. 31% 6. 88% Compensation benefits 5,099,000 5,028,000 4. 8% 4. 43% Deferred income 12,197,000 11,580,000 10. 48% 10. 21% Other accrued expenses liabilities 4,535,000 5,156,000 3. 89% 4. 54% Total current liabilities 42,123,000 40,562,000 36. 18% 35. 75% U. S dollar notes debentures 24,192,000 21,766,000 20. 78% 19. 19% Other debt in Euros 1,037,000 1,897,000 0. 89% 1. 67% Other debt in Japanese yen 1,123,000 1,162,000 0. 96% 1. 02% Other debt in Swiss francs 173,000 540,000 0. 15% 0. 48% Other currencies debt 177,000 240,000 0. 15% 0. 21% long debt 26,702,000 25,606,000 22. 93% 22. 7% Less net unamortized premium (discount) -533,000 -531,000 -0. 46% -0. 47% Add SFAS No. 133 fair value adjustment 994,000 788,000 0. 85% 0. 69% long-term debt before current maturities 27,161,000 25,863,000 23. 33% 22. 80% Less Current maturities 4,306,000 4,017,000 3. 70% 3. 54% Long-term debt 22,857,000 21,846,000 19. 63% 19. 26% Retire nonpension postretire benef obligs 18,374,000 15,978,000 15. 78% 14. 08% Deferred income 3,847,000 3,666,000 3. 30% 3. 23% Income tax militia 3,989,000 3,486,000 3. 43% 3. 07% Executive salary accruals 1,388,000 1,302,000 1. 19% 1. 5% Disability benefits 835,000 739,000 0. 72% 0. 65% Derivatives liabilities 166,000 135,000 0. 14% 0. 12% Restructuring actions 347,000 399,000 0. 30% 0. 35% Workforce reductions 366,000 406,000 0. 31% 0. 36% Deferred taxes 549,000 378,000 0. 47% 0. 33% Enviromental accruals 249,000 249,000 0. 21% 0. 22% Non-current sanction accruals 163,000 130,000 0. 14% 0. 11% Asset retirement obligations 166,000 161,000 0. 14% 0. 14% Other liabilities 777,000 841,000 0. 67% 0. 74% Total other liabilities 8,996,000 8,226,000 7. 73% 7. 25% Total liabilities 96,197,000 90,279,000 82. 2% 79. 57% Common stock 48,129,000 45,418,000 41. 34% 40. 03% kept up(p) earnings 104,857,000 92,532,000 90. 06% 81. 56% exchequer stock, at cost 110,963,000 96,161,000 95. 30% 84. 76% Net unreal gains (losses) on cash flow hedge derivatives 71,000 -96,000 0. 06% -0. 08% Foreign currency commentary adjustments 1,767,000 2,478,000 1. 52% 2. 18% Net change retirement-related benefit plans -23,737,000 -21,289,000 -20. 39% -18. 76% Net unrealized gains (losses) on mktble secur 13,000 164,000 0. 01% 0. 14% Accum gains (losses) not affecting ret earns -21,885,000 -18,743,000 -18. 0% -16. 52% Total stockholders equity 20,138,000 23,046,000 17. 30% 20. 31% Non-controlling interests 97,000 126,000 0. 08% 0. 11% Total equity 20,236,000 23,172,000 17. 38% 20. 42% Appendix 2 Common-size P ercent Report ensure 12/31/2011 12/31/2010 12/31/2011 12/31/2010 Services revenue 60,721,000 56,868,000 56. 79% 56. 94% Sales 44,063,000 40,736,000 41. 21% 40. 79% Financing revenue 2,132,000 2,267,000 1. 99% 2. 27% Total revenue 106,916,000 99,870,000 100. 00% 100. 00% Cost of services 40,740,000 38,383,000 38. 10% 38. 43% Cost of sales 14,973,000 14,374,000 14. 0% 14. 39% Cost of financing 1,065,000 1,100,000 1. 00% 1. 10% Total cost 56,778,000 53,857,000 53. 11% 53. 93% Gross profit 50,138,000 46,014,000 46. 89% 46. 07% Selling, general & administrative base expense 20,287,000 18,585,000 18. 97% 18. 61% Advertising & promotional expense 1,373,000 1,337,000 1. 28% 1. 34% Workforce reductions on-going expense 440,000 641,000 0. 41% 0. 64% Retirement-related expense 603,000 494,000 0. 56% 0. 49% Amortization expense-acquired intangibles 289,000 253,000 0. 27% 0. 25% Stock-based compensation 514,000 488,000 0. 8% 0. 49% Bad debt expense 88,000 40,000 0. 08% 0. 04% Total sel ling, general & administrative exps 23,594,000 21,837,000 22. 07% 21. 87% Research, development & engineering expenses 6,258,000 6,026,000 5. 85% 6. 03% cerebral property & custom development income 1,108,000 1,154,000 1. 04% 1. 16% Foreign currency transaction gains (losses) (513,000) (303,000) -0. 48% -0. 30% Gains (losses) on derivative instruments 113,000 239,000 0. 11% 0. 24% Interest income 136,000 92,000 0. 13% 0. 09% Net gains from securities & investments assets 227,000 (31,000) 0. 1% -0. 03% Other income & (expense) 58,000 790,000 0. 05% 0. 79% Total other income (expense) 20,000 787,000 0. 02% 0. 79% Interest expense 411,000 368,000 0. 38% 0. 37% Total expense & other income 29,135,000 26,291,000 27. 25% 26. 33% Income (loss) bef income taxes U. S. opers 9,716,000 9,140,000 9. 09% 9. 15% Income (loss) bef inc taxes Non-U. S. opers 11,287,000 10,583,000 10. 56% 10. 60% Income (loss) from keep trading operations before income taxes 21,003,000 19,723,0 00 19. 64% 19. 75% U. S federal official income taxes (benefit) current 268,000 190,000 0. 5% 0. 19% U. S. federal income taxes (benef) deferred 909,000 1,015,000 0. 85% 1. 02% Total U. S. federal income taxes (benefit) 1,177,000 1,205,000 1. 10% 1. 21% U. S. state & local inc tax (benef) current 429,000 279,000 0. 40% 0. 28% U. S. state & local inc tax (benef) deferred 81,000 210,000 0. 08% 0. 21% Total U. S. state & local income taxes (benef) 510,000 489,000 0. 48% 0. 49% Non-U. S. income taxes (benefit) current 3,239,000 3,127,000 3. 03% 3. 13% Non-U. S. income taxes (benefit) deferred 222,000 69,000 0. 21% 0. 07% Total non-U. S. ncome taxes (benefit) 3,461,000 3,196,000 3. 24% 3. 20% Provision for income taxes 5,148,000 4,890,000 4. 81% 4. 90% Net income (loss) 15,855,000 14,833,000 14. 83% 14. 85% Weighted average shares great(p)-basic 1,196,951. 006 1,268,789. 388 1. 12% 1. 27% Weighted average shares outstanding-diluted 1,213,767. 985 1,287,355. 388 1. 14% 1. 29% Year end shares outstanding 1,163,182. 564 1,227,993. 544 1. 09% 1. 23% Net earnings (loss) per share-basic 13. 25 11. 69 0. 00% 0. 00% Net earnings (loss) per share-diluted 13. 06 11. 52 0. 00% 0. 00% Dividends per share of common stock 2. 2. 5 0. 00% 0. 00% Total number of employees 433,362 426,751 0. 41% 0. 43% sum of common stockholders 504,093 523,553 0. 47% 0. 52% Appendix 3 Common-size Percent Report Date 12/31/2011 12/31/2010 12/31/2011 12/31/2010 Net income (loss) 15,855,000 14,833,000 79. 89% 75. 88% derogation 3,589,000 3,657,000 18. 08% 18. 71% Amortization of intangibles 1,226,000 1,174,000 6. 18% 6. 01% Stock-based compensation 697,000 629,000 3. 51% 3. 22% Deferred taxes 1,212,000 1,294,000 6. 11% 6. 62% Net loss (gain) on asset sales & other (342,000) (801,000) -1. 2% -4. 10% Receivables (including financing receivables) (1,279,000) (489,000) -6. 44% -2. 50% Retirement related (1,371,000) (1,963,000) -6. 91% -10. 04% Inventories (163,000) 92,000 -0. 82% 0. 47% Other assets/other liabilities (28,000) 949,000 -0. 14% 4. 85% Accounts payable 451,000 174,000 2. 27% 0. 89% Net cash flows from operating activities 19,846,000 19,549,000 100. 00% 100. 00% Payments for plant, rental machines & other property (4,108,000) (4,185,000) -20. 70% -21. 41% Proc from disp of plant, rental machines & oth prop 608,000 770,000 3. 06% 3. 4% Investment in software (559,000) (569,000) -2. 82% -2. 91% Purchases of marketable securities & other investments (1,594,000) (6,129,000) -8. 03% -31. 35% Proceeds from thirst of marketable securities & other investments 3,345,000 7,877,000 16. 85% 40. 29% Non-operating finance receivables net (291,000) (405,000) -1. 47% -2. 07% Acquisition of businesses, net of cash acquired (1,811,000) (5,922,000) -9. 13% -30. 29% Divestiture of businesses, net of cash transferred 14,000 55,000 0. 07% 0. 28% Net cash flows from investing activities (4,396,000) (8,507,000) -22. 5% -43. 52% Proceeds from new debt 9,996 ,000 8,055,000 50. 37% 41. 20% Payments to settle debt (8,947,000) (6,522,000) -45. 08% -33. 36% Sht-tm borrows (repays)-less than 90 days-net 1,321,000 817,000 6. 66% 4. 18% Common stock repurchases (15,046,000) (15,375,000) -75. 81% -78. 65% Common stock transactions, other 2,453,000 3,774,000 12. 36% 19. 31% Cash dividends paid (3,473,000) (3,177,000) -17. 50% -16. 25% Net cash flows from financing activities (13,696,000) (12,429,000) -69. 01% -63. 58% Eff of exch rate chngs on cash & cash equivs (493,000) (135,000) -2. 8% -0. 69% Net change in cash & cash equivalents 1,262,000 (1,522,000) 6. 36% -7. 79% Cash & cash equivalents, beginning of year 10,661,000 12,183,000 53. 72% 62. 32% Cash & cash equivalents, end of year 11,922,000 10,661,000 60. 07% 54. 53% Cash paid during the year for income taxes 4,168,000 3,238,000 21. 00% 16. 56% Cash paid during the year for interest 956,000 951,000 4. 82% 4. 86% Appendix 4 Trend Percent Report Date 12/31/2011 12/31/2010 12/31/ 2009 Services revenue 110. 15% 103. 16% 100. 00% Sales 115. 05% 106. 36% 100. 00% Financing revenue 91. 46% 97. 5% 100. 00% Total revenue 111. 65% 104. 29% 100. 00% Cost of services 109. 68% 103. 33% 100. 00% Cost of sales 110. 05% 105. 64% 100. 00% Cost of financing 87. 30% 90. 16% 100. 00% Total cost 109. 25% 103. 62% 100. 00% Gross profit 114. 51% 105. 09% 100. 00% Selling, general & administrative base expense 112. 36% 102. 93% 100. 00% Advertising & promotional expense 109. 66% 106. 79% 100. 00% Workforce reductions ongoing expense 92. 83% 135. 23% 100. 00% Retirement-related expense 187. 27% 153. 42% 100. 00% Amortization expense-acquired intangibles 101. 40% 88. 7% 100. 00% Stock-based compensation 123. 26% 117. 03% 100. 00% Bad debt expense 59. 86% 27. 21% 100. 00% Total selling, general & administrative exps 112. 61% 104. 22% 100. 00% Research, development & engineering expenses 107. 53% 103. 54% 100. 00% rational property & custom development income 94. 1 4% 98. 05% 100. 00% Foreign currency transaction gains (losses) -51300. 00% -30300. 00% 100. 00% Gains (losses) on derivative instruments 941. 67% 1991. 67% 100. 00% Interest income 144. 68% 97. 87% 100. 00% Net gains from securities & investments assets -202. 8% 27. 68% 100. 00% Net real gains (losses) from real est activs - - 100. 00% Other income & (expense) 16. 48% 224. 43% 100. 00% Total other income (expense) 5. 70% 224. 22% 100. 00% Interest expense 102. 24% 91. 54% 100. 00% Total expense & other income 113. 60% 102. 51% 100. 00% Income (loss) bef income taxes U. S. opers 102. 02% 95. 97% 100. 00% Income (loss) bef inc taxes Non-U. S. opers 131. 03% 122. 86% 100. 00% Income (loss) from continuing operations before income taxes 115. 80% 108. 74% 100. 00% U. S federal income taxes (benefit) current 56. 6% 40. 17% 100. 00% U. S. federal income taxes (benef) deferred 67. 79% 75. 69% 100. 00% Total U. S. federal income taxes (benefit) 64. 88% 66. 43% 100. 00% U. S. st ate & local inc tax (benef) current 357. 50% 232. 50% 100. 00% U. S. state & local inc tax (benef) deferred 43. 78% 113. 51% 100. 00% Total U. S. state & local income taxes (benef) 167. 21% 160. 33% 100. 00% Non-U. S. income taxes (benefit) current 138. 01% 133. 23% 100. 00% Non-U. S. income taxes (benefit) deferred 89. 88% 27. 94% 100. 00% Total non-U. S. income taxes (benefit) 133. 2% 123. 21% 100. 00% Provision for income taxes 109. 23% 103. 76% 100. 00% Income (loss) from continuing operations - - 100. 00% Net income (loss) 118. 10% 110. 49% 100. 00% Weighted average shares outstanding-basic 90. 19% 95. 60% 100. 00% Weighted average shares outstanding-diluted 90. 49% 95. 97% 100. 00% Year end shares outstanding 89. 11% 94. 07% 100. 00% Earnings (loss) per share from continuing operations-basic - - 100. 00% Net earnings (loss) per share-basic 130. 93% 115. 51% 100. 00% Earnings (loss) per share from continuing operations-diluted - - 100. 0% Net earnings (loss) per sh are-diluted 130. 47% 115. 08% 100. 00% Dividends per share of common stock 134. 88% 116. 28% 100. 00% Total number of employees 98. 99% 97. 48% 100. 00% Number of common stockholders 92. 70% 96. 28% 100. 00% Appendix 5 Trend percent Report Date 12/31/2011 12/31/2010 12/31/2009 Cash & cash equivalents 97. 86% 87. 51% 100. 00% Marketable securities 0. 00% 55. 28% 100. 00% Notes & accounts receivable trade, net 104. 13% 100. 91% 100. 00% Short-term financing receivables 113. 32% 109. 00% 100. 00% Other accounts receivable 129. 7% 99. 21% 100. 00% done for(p) goods 110. 51% 81. 05% 100. 00% Work in process & raw materials 102. 40% 102. 96% 100. 00% Inventories 104. 05% 98. 24% 100. 00% Deferred taxes 92. 54% 90. 40% 100. 00% Prepaid expenses & other current assets 133. 02% 107. 10% 100. 00% Total current assets 104. 07% 98. 33% 100. 00% Land & land improvements 106. 65% 105. 43% 100. 00% Buildings & building improvements 102. 33% 101. 07% 100. 00% Plant, laboratory & office equipment 103. 69% 103. 04% 100. 00% Plant & other property, gross 103. 39% 102. 58% 100. 0% Less accumulated depreciation 105. 19% 104. 05% 100. 00% Plant & other property, net 100. 02% 99. 82% 100. 00% Rental machines, gross 81. 07% 93. 60% 100. 00% Less Accumulated depreciation 79. 03% 90. 34% 100. 00% Rental machines, net 83. 39% 97. 37% 100. 00% Plant, rental machines & oth property, gross 101. 33% 101. 75% 100. 00% Less Accumulated depreciation 103. 19% 103. 00% 100. 00% Plant, rental machines & other property, net 98. 01% 99. 51% 100. 00% Long-term financing receivables 101. 24% 99. 10% 100. 00% Prepaid pension assets 94. 4% 102. 23% 100. 00% Deferred taxes 83. 50% 76. 76% 100. 00% Goodwill 129. 83% 124. 50% 100. 00% Intangible assets, net 134. 98% 138. 80% 100. 00% Deferred transition & set-up costs & other deferred arrangements 100. 68% 104. 57% 100. 00% Derivatives, non-current 133. 27% 104. 07% 100. 00% Alliance investments equity method 113 . 91% 106. 09% 100. 00% Alliance investments non-equity method 26. 62% 111. 32% 100. 00% Prepaid software 74. 68% 85. 90% 100. 00% Long-term deposits 99. 03% 112. 90% 100. 00% Other receivables 33. 71% 90. 76% 100. 00%Employee benefit related 115. 46% 95. 78% 100. 00% Prepaid income taxes - - - Other assets 76. 37% 84. 67% 100. 00% Total investments & sundry assets 91. 00% 107. 42% 100. 00% Total assets 106. 80% 104. 06% 100. 00% Taxes 86. 59% 110. 19% 100. 00% Commercial paper 978. 72% 486. 81% 100. 00% Short-term loans 108. 65% 94. 51% 100. 00% Long-term debt current maturities 193. 79% 180. 78% 100. 00% Short-term debt 203. 05% 162. 62% 100. 00% Accounts payable 114. 54% 104. 95% 100. 00% Compensation & benefits 113. 19% 111. 61% 100. 00% Deferred income 112. 7% 106. 78% 100. 00% Other accrued expenses & liabilities 86. 83% 98. 72% 100. 00% Total current liabilities 117. 00% 112. 67% 100. 00% U. S dollar notes & debentures 132. 58% 119. 29% 100. 00% Other debt in Eu ros 30. 26% 55. 35% 100. 00% Other debt in Japanese yen 71. 76% 74. 25% 100. 00% Other debt in Swiss francs 35. 74% 111. 57% 100. 00% Other currencies debt 62. 11% 84. 21% 100. 00% Long-term debt 111. 22% 106. 66% 100. 00% Less net unamortized premium (discount) 101. 14% 100. 76% 100. 00% Add SFAS No. 133 fair value adjustment 147. 70% 117. 9% 100. 00% Long-term debt before current maturities 112. 45% 107. 08% 100. 00% Less Current maturities 193. 79% 180. 78% 100. 00% Long-term debt 104. 22% 99. 61% 100. 00% Retire & nonpension postretire benef obligs 115. 18% 100. 16% 100. 00% Deferred income 108. 00% 102. 92% 100. 00% Income tax militia 109. 98% 96. 11% 100. 00% Executive compensation accruals 119. 66% 112. 24% 100. 00% Disability benefits 105. 03% 92. 96% 100. 00% Derivatives liabilities 25. 58% 20. 80% 100. 00% Restructuring actions 78. 68% 90. 48% 100. 00% Workforce reductions 89. 9% 99. 27% 100. 00% Deferred taxes 116. 81% 80. 43% 100. 00% Enviromental accruals 101. 63% 1 01. 63% 100. 00% Non-current warranty accruals 129. 37% 103. 17% 100. 00% Asset retirement obligations 143. 10% 138. 79% 100. 00% Other liabilities 99. 49% 107. 68% 100. 00% Total other liabilities 102. 01% 93. 28% 100. 00% Total liabilities 111. 51% 104. 65% 100. 00% Common stock 115. 11% 108. 63% 100. 00% Retained earnings 129. 61% 114. 38% 100. 00% Treasury stock, at cost 136. 58% 118. 36% 100. 00% Net unreal gains (losses) on cash flow hedge derivatives -14. 6% 19. 96% 100. 00% Foreign currency translation adjustments 96. 24% 134. 97% 100. 00% Net change retirement-related

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