M. A.

Houston, MBA 5100 B90 Online, Summer B 2015

Financial Statement Analysis 30 points
Use IBM annual report for the period ended December 31, 2014. On the Internet, go to the IBMs home
page (IBM United States). Then go to bottom of the page. Under Information for, click on Investors. Do
NOT use financial information from any other source. Save the annual report to your computer. Save a
tree; do not print the report. However, you may to want to print the financial statements (annual report
pages 80, 82 and 83).
There are two types of page numbers. The annual report has page numbers at the top. The pdf file may
have different page numbers. When answering questions, use the annual report page number.
Answer the following questions based on information found on and after report page 77. You will need to
use the notes following the financial statements to answer some of the questions. You do not need to
read all of the notes. Instead, use the Find function or scan the headings to identify topics. When you
find the topic, read the note to obtain the information requested. Label your answers (1, 2, .etc). You do
not need to answer in complete sentences. Word process your report. Use a 12 or larger font. You will be
graded on content and appearance.
The report is due on July 26 at 10am in the Pilot dropbox. Be sure your name is in the file name, for
example, FReportMHouston.docx.
General Information
1. What is the name of the companys independent registered public accounting firm?
2. Who is responsible for the financial statements and internal controls?
3. Does the company believe that the internal controls are working properly?
Are there any exceptions or exclusions?
Who signed the management letter?
4. Does the independent registered public accounting firm believe the financial statements are
presented fairly (provide a report page reference)?
5. How many Notes are there to the financial statements?
6. What are the five reportable segments? (See Notes)
7. How are the amounts on the financial statements reported at face value, in thousands, or in
millions?
8. What is the companys year end fiscal or calendar?
9. What happened on October 20, 2014?
Income Statement
10. Refer to Note A. How many paragraphs does it take to explain when the company recognizes
revenue.
11. What words does the company use instead of Income Statement?
12. By how much did total revenue increase or decrease from the prior year?
13. Does the company report a cost of sales?
Does the company show a gross profit?
14. Compute the gross profit (dollar) and gross margin (percentage) for Services, Sales, and
Financing for this year and last year.
On a percentage basis, which segment is most profitable?
15. What are the components of selling, general and administrative expenses? (See Note A)
16. When are research and development costs expensed? (See Note A)
17. Did the company have income from continuing operations before income taxes (IBT)?
Compare the IBT for the three years shown.

18. Compare the net income for the three years shown.
19. Compute the profit margin ratio (IBT/Total Revenue) for the three years shown.
20. Comment on the changes in revenue, gross margin, and profit margin for the three years
shown. Is this trend favorable or unfavorable for the company?
21. What are the basic earnings (loss) per share from continuing operations for the three
years shown (not assuming dilution)?
Comment on the trend.
Balance Sheet
22. How much cash did the company have on hand at the end of the year?
23. Compare the balance of trade notes and accounts receivable for the two years shown.
Does this make sense in relation to the change in sales?
24. List the types of inventories the company holds (see the notes).
25. How does the company value its inventory (see the notes)?
26. What is the largest current asset?
What is the largest current liability?
27. Compute the working capital and current ratio for 2014.
Will the company be able to pay its current liabilities?
Explain.
28. How did the property, plant and equipment change between this and last year?
29. What method of depreciation does the company use?
30. What are the types of intangible assets that the company owns? (See the Intangible Assets
Note)
31. How did long-term debt change from last year (increase/decrease and by how much)?
32. What is the longest maturity of the long-term debt? (Will you be alive when it matures? I wont.)
What are the highest and lowest interest rates?
33. Compare total liabilities to total assets?
What percentage of the companys assets is financed with debt?
Comment on this.
34. What is treasury stock?
Does the company have treasury stock?
If yes, did the amount increase or decrease from the previous year?
Statement of Cash Flow
35. Cash Flows from Operations
Is the companys net income (loss) different from cash flows from operations?
Is the difference in the two amounts favorable for the company?
Explain the major reason(s) for the difference.
36. Cash Flows from Investments
Did the company purchase and/or dispose of property, plant and equipment?
Is it ok that the Cash Flows from Investing Activities in negative? Explain.
37. Cash Flows from Financing
Did the company pay dividends? If yes, how much?
Did the company issues debt? If yes, how much?
Is there a trend for stock repurchases? If yes, comment on the trend.
38. Compare the amount of cash paid for income taxes to the income tax provision on the
income statement.
What do you think this means?
Your ability to answer the above questions is an indication that you can apply the concepts in
MBA 5100 to an actual company. Well done!