Ibm Financial Analysis

1. IBM: A Systematic Financial Analysis.

1.1 Introduction

In order to make informed investment decisions, potential investors should carefully analyze all available information about the company (or companies) that they are planning to add to their portfolios. One such way is by performing a systematic financial analysis for each of the companies in question (Giroux 2003). The results of this analysis can then be used to determine whether or not the company presents a sound investment opportunity.

International Business Machines Corporation (IBM) operates as an information technology (IT) company worldwide. The company has three segments: Systems and Financing, Software, and Services. The Systems and Financing segment offers various systems that include servers, data storage products, integrated supply chain services, lease and loan financing to external and internal clients, among other types of financing services. The Software segment provides database and content management software solutions, Lotus collaboration and messaging software, and other infrastructure management solutions. The Services segment primarily offers business performance transformation services, business consulting services, and performance management services, among a myriad of other network optimization packages (IBM Annual Report). At first glance, the company seems to be financially strong and a good investment opportunity. However, before making a final decision, a comprehensive analysis on the company’s financial position needs to be performed.

1.2 Purpose

The purpose of this analysis is to determine whether or not IBM represents a wise investment choice.

2. Corporate Overview

2.1 Industry Analysis

2.1.1 Economic Conditions

Over the last couple of years, the country has recovered from the economic problems faced during the end of 2001 and most of 2002. This period of induced expansion was fueled, mainly, by fiscal policy - tax breaks, foreign investment, trade deficits. It is uncertain how the November elections (the Democratic Party’s return to the Senate and House of Representatives leadership positions) will affect the market. For the purposes of this analysis, it will be assumed that the economy will continue to expand and that there will be no major changes in legislation passed by Congress. The unresolved conflicts in the Middle East and the Korean peninsula contain several potential “wildcards” that may or may not have to be dealt with.

However, even with these unknown factors, the economy should be expected to perform at a reasonably good level. The stock market should continue to deliver strong performances; the following graph represents the S&P 500 Composite Index over the past 22 months.

The index shows an increasing trend. Again barring any major economic policy shifts or the outbreak of new military conflicts, the economy should continue its healthy expansion, and the markets should maintain the current trend.

2.1.2 Industry Specifics

The economic backdrop outlined above should be favorable for the Computer and Peripheral Industry. For years, businesses have been turning to computers to automate their operations. As companies improve the efficiency of the entire supply chain, demand for computing hardware and all the necessary services to install, manage and maintain such systems has increased. New technologies, such as radio frequency identification tags (RFID’s), will boost the need for storage to track the data generated by the tags as goods move from the manufacturer to end user (Value Line 2006).

Apart from the above mentioned demand sources, the years ahead should see computing and storage needs grow rapidly in the medical field. Moves are on their way to improve the tracking of patients’ histories to cut down on medical errors and to improve the quality of care. According to industry analysts, an estimated 90% of all medical centers (hospitals, clinics, laboratories, etc.) lack this type of technology, and adopting it will require an estimated $115.2B USD investment over the next 15 years (Value Line 2006).

2.2 Business Strategy

IBM’s business model is built to support two main goals: helping its clients succeed in delivering business value through the use of business insight and information technology, and providing long term value to shareholders. In addition, as part of the effort of driving profits