Financial Statement Analysis of Ibm

Financial educational activity abbreviation of IBM Financial Statement Analysis of IBM I. Compevery Facts IBM International Business Machines Corpo balancen The home office of IBM is turn up in Armonk, Town of North Castle, New York, United States. IBM was founded in 1911 as the Computing Tabulating Recording Company (CTR) by a merger of triple companies the Tabulating Machine Company, the International Time Recording Company, and the Computing Scale Company.CTR pick out the sp abrogate a penny International Business Machines in 1924, utilise a name previously designated to CTRs subsidiary in Canada and later South America. Standard industrial Classification Codes be 7379 which ar mainly on electronic electronic computer and congress stuff. Chief executive director Officer (CEO) of IBM at at a time is Virginia M. Rometty. Chairman of the Board of IBM now is Samuel J. Palmisano. The end date of recent fiscal course of study of IBM is Dec. 31st 2011. of import wor k IBM provides include business consulting, IT colligate assists, outsourcing service and training.Main products IBM provides include mainframe, package, body-build and storage. IBMs major op eontions consist of five business segments orbiculate engineering go, Global Business go, packet, Systems and Technology and Global Financing. In the a la mode(p) fiscal course of study, IBM has an add together of 433,362 wholly owned employees tout ensemble over the world. PricewaterhouseCoopers LLP (PwC) is the unconditional auditor retained to audit IBMs consolidated financial Statements and the effectivity of the bon tons internal escort over financial reporting.The stock ticker symbolism is IBM. IBM roughhewn stock is listed on the New York s panache Exchange, the Chicago Stock Exchange, and outside the United States. And the latest stock expenditure was $188. 32 on Nov. fourteenth 2012 on NYSE. II. Business and Strategy Analysis 1. Industry rendering and Competitive Anlysis Since IBM is a highly diversified confederacy, it concentrates on several industries at the same time. So lets say IBM mainly concentrates on the computer related expectantw ar and packet manufacturing industries. As we all now, these twain industries supplement severally early(a) and depend on each separate darn the approximately war homogeneous companies always work on somewhat(prenominal) industries at the same time. The computer related software and hardware manufacturing intentness is characterized by signifi fag endt research and cultivation activity and rapid expert change. The rapid pace of innovation in this sector creates a uniform demand for moder and fast-breaking products and applications. While the sector has g classn faster than nigh new(prenominal) industries over the past several decades, it faces challenges from rising speak tos, global food market place conduct, and the rapid pace of innovation.The main competitors for IBM now are Hewlett-Packard, Dell and Microsoft. here I go forth use the Porter five forces analysis to go out a rivalrous analysis among these quadruplet companies. Threat of invigorated ambition The market of this exertion is paid in some part equivalent high-level software and frames, non too meshing subject in some new(prenominal) move alike PCs. So we tail end say the market is alleviate returns satisfactory and is attracting the novel entrants, which has the possibility to decrease profitability for all firms in this industry.While in this industry, because of the existence of several self-aggrandizing companies, the barriers to entry are relatively high which are non-profitable for the new entry firms. The several gargantuan companies shake off held rattling high brand honor, customer loyalty, greet-efficient dispersal modes and scale effect to decrease the be and sum up the dough. There is non too oft panic from the new firms to compete with IBM, ther e are high possibility for other main competitors like HP, Dell and Microsoft to picture the markets where IBM is making high profit, well they adjudge the R&D capabilities.But to turn over the biggest profits, although IBMs main competitors are Hewlett-Packard, Dell and Microsoft, each of these companies has a different locate area. Dell makes to the highest degree of its money on PC and server hardware, epoch Hewlett-Packard is more(prenominal) diversified as the induceer in PCs and Imaging effect as well as offering IT services and Microsoft concentrates on the computer software knowledge. So we keister conclude that there is threat of new competition, but the level is relatively low.Threat of substitute products or services The threat of substitute products or services is relatively high compared with the threat of new competition. Also these threats come from the main competitors. For products, such as PC, near customers volition compare the harm, screen size, life time and other attributes instead of save the brand the same way as services such as IT consulting etc. Bargaining position of customers The bargaining power of customers is likewise set forth as the market of outputs the ability of customers to put the firm under pressure, which also affects the customers sensitivity to price changes.In this factor, because customers of these ii industries throw many channels to some(prenominal)er the products and services, high information availability, different choices, differentiated advantages of products and customers is also kind of price sensitive. So we lav conclude that the bargaining power of customers is strong. Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of untoughened materials, components, labor, and services (such as expertise) to the firm can be a delegatetime of power over the firm, when there are few substitutes.Because there are plenty of s uppliers in most parts, presence of substitute keeps being produced, tier of differentiation of inputs is not high sufficiency and supplier competition is rattling strong. Then we can conclude that bargaining power of suppliers is also in a lower level. Intensity of private-enterprise(a) rivalry Intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Sustainable competitive advantages done innovation, all these four big competitive companies have strong R&D team and invest very much money on it.And we can always see the advertisements of their products anywhere. Each caller has a differentiated competitive strategy to concentrate on their own areas and holds sustainable competitive advantages by dint of innovation. So we can conclude that the intensity of competitive rivalry is rattling high. Given the Porter five forces analysis above, here we have a everyday conclusion that computer related hardware and software industries are rel atively highly competitive and sustainable root word on the reliable situation and future development trends.There do have some profitable niche market and some areas can be developed further. The big four companies have their own advantages and fury and also compete severely with each other. There is no easy way for each of them to lead in all. 2. Industrys Future Prospects Assessment When we come to emit about the future prospects of computer related hardware and software industries, Im sure that it will not be that promising like nanotechnology or ge pelfic therapy which is still in research period, since he computer related hardware and software industries have been developed many classs, 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 take in forward even a bittie. And the intense competition and fast exchange locomote will drive these two industries to be developed faster and faster.There may be some lawsuits and governmental regulations there confronting companies, such as the plagiarization, copyright infringement, anti-monopoly, cutthroat competition, revenue issue, topical anesthetic anaesthetic protection and so on. These will be the main legal issues that companies of two these industries are certainly conflict now and will still never end in the future. plagiarisation and copyright infringement will be the two main issues that these companies should remunerate 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 may be judged by the court saying it is buying the potential competitor callable to the concern of monopoly of government. Cutthroat competition may not happen, while once it happened, it will certainly be a disaster. Tax issue and the local prot ection are always come together. Local government may protect the local companies by dealing high tax to the overseas competitors. Furthermore, collect 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 run across is one of the key parts to determine these companies future. And innovation will never be too much. 3. summarisation and Evaluation of IBMs Future Goals and Strategies The adjacent decade holds enormous forebode for IBM. They are uniquely positioned to deliver the benefits of a vast new inwrought resource a gusher of entropy from both man-made and natural systems that can now be tapped to help businesses and institutions succeed in an change magnitudely composite and dynamic global economy.IBM has steady receivedigned its business to lead in a new era of computing and to enable its clients to benefit from the new capabilities that era is creating. As a conseque nce, its investors benefit from a business model that is both sustainable over the long term and fueled by some of the worlds most attractive high-growth markets and technologies. It will be on track toward its 2015 Road Map goal of at least $20 in ope dimensionn lettuce per allocate and $20 one thousand thousand in tax growth by 2015. This goal for IBM is quite suitable.There are four high-growth spaces as following, growth markets, business analytics, cloud and smarter pla cabbage. These four spaces IBM is working hard on will certainly drive to high profits imputable 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 moving to the future, and to keep generating differentiating grade for its clients, its employees and the citizens of the world. III. Accounting AnalysisThe ac familying f utilize Financial Statements and foot notes of the International Business Machines Corpo proportionalityn (IBM or the social club) have been alert in accordance with accounting principles globally accepted in the United States of America (GAAP). 1. Revenue The gross recognition principle provides steering on when a company must recognize revenue. To recognize promoter to put down it. If revenue is recognise too early, a company would look more profitable than it is. If revenue is recognized too late, a company would look less profitable than it is. The company recognizes revenue when it is realized or realizable and clear.The company considers revenue realized or realizable and earn when it has persuasive evidence of an arrangement, delivery has occurred, the clear gross gross revenue price is fixed or calculable 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 either client adoption has been obtained, client acceptance provisions have lapsed, or the company has object evidence that the criteria specified in the client acceptance provisions have been satisfied.The gross gross revenue price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved. IBMs revenue was growing in an increasing speed and its pre-tax income gross profit grew from 18. 9 pct in 2009 to 19. 7 portion in 2010 to 20. 02 percent in 2011 which is the ninth sequent increasing course. If only based on this, IBM was doing conk out and bring out in last three years. 2. Major Expenses The get down recognition (or matching) principle, prescribes that a company record the set downs it incurred to generate the revenue reported.The expenditure recognition (or matching) principle aims to record write downs in the same accounting period as the revenues that are earned as a result of those set downs. This matching of outgos with the revenue benefits is a major part of the adjusting process. Under the accrual basis of accounting, disbursals are recognized when incurred, unremarkably when honests are received or services are consumed. This may not be when the goods or services are actually paid for. The point at which an get down is recognized is dependent on the nature of the execution or other event that gives rise to the expense.The major expense of IBM includes stock-based mesh, prepared expense, advertising and promotional expense, research expense, development expense, engineering expense, workforce rebalancing charges, retirement-related be, amortisation of acquired intangibles additions, touch on expense and other expense. Below tables show the main expenses IBM recognized from 2009 to 2011. obtain panel 3-2-1 wide-cut Expense and other(a) Income ($ in millions) For the year stop declination 31 2011 2010 2009 wide-cut consolidated expense and other (income) $29,135 $26,291 $25,647 come operating (non-GAAP) expense and other (income) $28,875 $26,202 $25,603 numerate consolidated expense-to-revenue proportion 27. 30% 26. 30% 26. 80% Operating (non-GAAP) expense-to-revenue dimension 27. 00% 26. 20% 26. 70% We can see from this table that the expense is increasing with time goes on. While compared with the increasing speed of revenue and that of expense-to-revenue, we can figure out a fiddling bit progress on expense control of IBM. put back 3-2-2 Selling, world-wide and Administrative ($ in millions) For the year cease declination 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 Workforce rebalancing charges $440 $641 $474 bangment-related costs $603 $494 $503 amortisation of acquired intangibles assets $289 $253 $285 Stock-based allowance $514 $488 $417 Bad debt expense $88 $40 $147 impart consolidated selling, general and admin istrative expense $23,594 $21,837 $20,952 Non-operating adjustments amortisation of acquired intangible assets ($289) ($253) ($285) achievement-related charges ($20) ($41) ($8) Non-operating retirement-related (costs)/income ($13) $84 $127 Operating (non-GAAP) selling, general and administrative expense $23,272 $21,628 $20,787 Table 3-2-3 Research, Development and Engineering ($ in millions) For the year terminate December 31 2011 2010 2009 note consolidated research, development and engineering $6,258 $6,026 $5,820 Operating (non-GAAP) research, development and engineering $6,345 $6,152 $5,943 Table 3-2-4 Interest Expense ($ in millions)For the year ended December 31 2011 2010 2009 Interest expense $411 $368 $402 From all the tables above, we can become 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 hard specie investiture was $1. 2 gazillion fo r six attainments five of them in key areas of software. And after investing $ 5. 8 billion in R &D and $3. 7 billion in cabbage capital expenditures, IBM was able to return more than $10 billion to you $7. billion through share repurchase and $2. 9 billion through dividends. fit years dividend increase was 10 percent, marking the 14th year in a row in which it has raised its dividend. IBMs 2010 bullion flow has enabled it to invest in the business and to generate authentic returns to investors. Our 2010 gold investiture was $6 billion for 17 acquisitions 13 of them in key areas of software. After investing $6 billion in R&D and $4 billion in light up capital expenditures, IBM was able to return more than $18 billion to you $15. billion through share repurchases and $3. 2 billion through dividends. Last years dividend increase 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 share repurchases, while investing $70 billion in capital expenditures and acquisitions, and almost $60 billion in R&D. IBMs 2011 notes flow has enabled IBM to invest in the business and to generate substantial returns to investors, while spending $6. billion on R&D. In 2011 IBM invested $1. 8 billion for five acquisitions in key areas of software and $4. 1 billion in electronic dischargework capital expenditures. IBM was able to return $18. 5 billion to you $15 billion through share repurchases and $3. 5 billion through dividends. Last years dividend increase was 15 percent, marking the 16th year in a row in which IBM has raised its dividend, and the 96th consecutive year in which it has paid one. From the table and the description above, the R&D investment was always above 5% of summate revenue.IBM put much emphasis on its R&D to keep the sustainable development and competitive advantages. 4. Inventories Raw materials, work in process and finished go ods are give tongue to at the lower of average cost or market. specie flows related to the sale of inventories are reflected in scratch coin from operating activities in the Consolidated Statement of silver Flows. Table 3-4-1 Inventories ($ in millions) At December 31 2011 2010 2009 Finished goods $589 $432 $533 Work in process and rude(a) materials $2,007 $2,018 $1,960 fall $2,595 $2,450 $2,494 5.Property, graft and Equipment Property, plant and equipment are carried at cost and depreciated over their estimated usable lives apply the straight-line method. The estimated useful lives of certain depreciable assets are as follows buildings, 30 to 50 years building equipment, 10 to 20 years the three e narrates improvements, 20 years plant, laboratory and office equipment, 2 to 20 years and computer equipment, 1. 5 to 5 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term, rarely exceeding 25 years.Below is th e table of Property, Plant and Equipment from 2009 to 2011 including the depreciation. Table 3-5-1 Property, Plant and Equipment ($ in millions) At December 31 2011 2010 2009 Land and cut 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 property clear $37,160 $36,867 $35,940 slight Accumulated depreciation $24,703 $24,435 $23,485 Plant and other property winnings $12,457 $12,432 $12,455 Rental machines $2,964 $3,422 $3,656less(prenominal) Accumulated depreciation $1,538 $1,758 $1,946 Rental machinesnet $1,426 $1,665 $1,710 entirenet $13,883 $14,096 $14,165 The data from the table show a relatively steadily decreasing status of IBMs property, plant and equipment in all. This heart a good control and a relatively 6. saving grace and Intangibles Below tables show the intangibles from 2009 to 2011 Table 3-6-1 Intangibles in 2009 ($ in millions) At December 31, 2009 gro ssCarryingAmount Accumulated Amortization concluding Carrying Amount Intangible asset class Capitalized software $1,765 ($846) $919 guest relationships $1,367 ($677) $690 Completed technology $1,222 ($452) $770 Patents/trademarks $174 ($59) $115 new(prenominal)* $94 ($75) $19 get along $4,622 ($2,109) $2,513 Table 3-6-2 Intangibles in 2010 ($ in millions) At December 31, 2010 consummate(a)CarryingAmount Accumulated Amortization straighten out Carrying Amount Intangible asset class Capitalized software $1,558 ($726) $831 invitee relationships $1,709 ($647) $1,062 Completed technology $2,111 ($688) $1,422In-process R&D $21 $0 $21 Patents/trademarks $211 ($71) $140 different* $39 ($28) $11 centre $5,649 ($2,161) $3,488 Table 3-6-3 Intangibles in 2011 ($ in millions) At December 31, 2011 GrossCarryingAmount AccumulatedAmortization networkCarryingAmount Intangible asset class Capitalized software $1,478 ($678) $799 Client relationships $1,751 ($715) $1,035 Completed tech nology $2,156 ($745) $1,411 In-process R&D $22 ($1) $21 Patents/trademarks $207 ($88) $119 some other* $29 ($22) $7 $5,642 ($2,250) $3,392The net carrying amount of intangible assets fall $96 million during the year ended December 31, 2011, primarily due to amortization, partially offset by intangible asset additions. No check of intangible assets was recorded in any of the periods presented. wide 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 $1,133 million of fully amortized intangible assets, impacting both the gross carrying amount and store amortization for this amount. The amortization expense for each of the five succeed years rel ating to intangible assets onlinely recorded in the Consolidated Statement of Financial Position is estimated to be the following at December 31, 2011 Table 3-6-4 Estimated consolidated statement of financial position ($ in millions) Capitalized software program Acquired Intangibles summate 012 $480 $634 $1,113 2013 $250 $590 $840 2014 $70 $446 $516 2015 $340 $340 2016 $303 $303 The changes in the goodwill balances by reportable segment, for the years ended December 31, 2009, 2010 and 2011, are as follows Table 3-6-5 Goodwill Balances in 2009 ($ in millions) incision Balance anuary 1, 2009 Goodwill Additions Purchase Price Adjustments Divestitures unknown gold interpreting and new(prenominal) Adjustments Balance December 31, 2009Global Business Services $3,870 $172 $4,042 Global Technology Services $2,616 $10 $1 $150 $2,777 Software $10,966 $994 ($50) ($13) $708 $12,605 Systems and Technology $772 ($7) $1 $12,605 aggregate $18,226 $1,004 ($ 56) ($13) $1,031 $20,190 Table 3-6-6 Goodwill Balances in 2010 ($ in millions) Segment Balance anuary 1, 2010 Goodwill Additions Purchase Price Adjustments Divestitures Foreign bills Translation and Other 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 derive $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 Other 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 aggregate $25,136 $1,291 $2 ($13) ($2 03) $26,213 Purchase price adjustments recorded in the 2011, 2010 and 2009 were related to acquisitions that were completed on or prior to December 31, 2010, 2009 or 2008 respectively, and were still subject to the flierment period that ends at the earlier of 12 months from the acquisition date or when information becomes available.There were no goodwill deterioproportionn losses recorded in 2011, 2010 or 2009 and the company has no accumulated impairment losses. IV. Financial Analysis 1. Financial Ratio Display and adaptation 2. 1 Liquidity and power Ratios a. Current dimension 2011 Current proportion=Current assetsCurrent liabilities=50,92842,123=1. 211 2010 Current dimension=Current assetsCurrent liabilities=48,11640,562=1. 191 The actual dimension is a financial proportion that measures whether or not a firm has enough resources to pay its debts over the conterminous 12 months. It compares a firms new assets to its sure liabilities.Here, we can conclude that IBM is sumly able to pay for its debt. b. warm proportion (Acid-test ratio) 2011 Quick ratio=Cash+Short-term investments+ Current receivablesCurrent liabilities=11,922+4,895+18,38242,123=0. 841 2010 Quick ratio=Cash+Short-term investments+ Current receivablesCurrent liabilities=10,661++4,895+17,39140,562=0. 811 Quick assets are property, short-run investments, and current receivables. These are the most liquid types of current assets. The acid-test ratio, also called pronto ratio, reflects on a companys short-term liquid.The quick ratio is more conservative than the current ratio, a more well-known liquidity measure, because it excludes archive from current assets. line is excluded because some companies have difficulty bout their enumeration into cash. Here, the quick ratio is pretty good for IBM. c. Accounts receivable disturbance 2011 Accounts receivable turnover rate= fee salesAverage accounts receivable, net=106,91617,886. 5=5. 97 multiplication 2010 Accounts receivable turnover= authorise salesAverage accounts receivable, net=99,87016,724=5. 97 measureAn accounting measure used to quantify a firms effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measure how expeditiously a firm uses its assets. d. Inventory turnover 2011 Inventory turnover=Cost of goods soldAverage inventory=56,7782,522. 5=22. 51 times 2010 Inventory turnover=Cost of goods soldAverage inventory=53,8572,472=21. 89 times The Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. e. Days sales collect 011 Days sales uncollected=Accounts receivable, net gelt sales*365=18,382106,916*365=62. 75 days 2010 Days sales uncollected=Accounts receivable, net scratch sales*365=17,39199,870*365=63. 56 days Accounts receivable turnover provides insight into how frequently a company collects its accounts. Days sales uncollected is one measure of this activity. f. Days sal es in inventory 2011 Days sales in inventory= end point inventoryCost of goods sold*365=2,59556,778*365=16. 68 days 2010 Days sales in inventory= goal inventoryCost 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. sum up assets turnover 2011 Total assets turnover= boodle salesAverage total assets=106,916114,942. 5=0. 93 times 2010 Total assets turnover= give notice salesAverage total assets=99,870111,237=0. 90 times The total asset turnover ratio measures the ability of a company to use its assets to expeditiously generate sales.This ratio considers all assets, current and fixed. Those assets include fixed assets, like plant and equipment, as well 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 residual of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. b. Equity ratio 011 Equity ratio=Total uprightnessTotal assets=20,236116,433=17. 4% 2010 Equity ratio=Total beauteousnessTotal assets=23,172113,452=20. 4% A financial ratio indicating the relative proportion of candor used to finance a companys assets. The two components are often taken from the firms balance sheet or statement of financial position (so-called playscript value), but the ratio may also be figure using market values for both, if the companys equities are publicly traded. c. Interest coverage ratio 2011 Interest coverage ratio=Income before wager expense and income taxesInterest expense=22,90 4411=55. times 2010 Interest coverage ratio=Income before interest expense and income taxesInterest expense=20,923368=56. 9 times A metric used to measure a companys ability to adjoin its debt obligations. It is calculated by taking a companys earnings before interest and taxes (EBIT) and dividing it by the total interest 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. Profitability Ratios a. Return on total assets 2011 Return on total assets= concluding incomeAverage total assets=15,855114,942. 5=13. 8% 2010 Return on total assets=Net incomeAverage total assets=14,833 111,237=13. 3% A ratio that measures a companys earnings before interest and taxes (EBIT) against its total 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. Return on equity 2011 Return on equity=Net income-Preferred dividendsAverage equity=15,855-3,47321704=57. % 2010 Return on equity=Net income-Preferred dividendsAverage equity=14,833- 3,177 22963. 5=50. 8% The amount of net income returned as a voice 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. Net income as a percentage of net sales (Profit coast ratio) 2011 Net income as a percentage of net sales=Net incomeNet 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 divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Profit margin is very useful when comparing companies in similar industries. A high prof it margin indicates a more profitable company that has better 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, uttered 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 higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations. 2. 4 foodstuff ratios a. Price-Earnings ratio 2011 Price-Earnings ratio=Market price per common shareEarnings per share=183. 8813. 25=13. 91 010 Price-Earnings ratio=Market price per common shareEarnings per share=146. 7611. 69=1 2. 61 P/E ratio is an equity valuation measure defined as market price per share divided by annual earnings per share. b. Dividend number 2011 Dividend offspring=Annual cash dividends per shareMarket price per share=2. 90183. 88=1. 6% 2010 Dividend hand=Annual 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 result is the return on investment for a stock. . comparison and Interpretation of Ratio set With Main Competitors Microsoft each 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=Current assetsCurrent liabilities=74,91828,774=2. 601 The lower current ratio kernel that Microsoft has more resources to pay its debts over the abutting 12 months. b. Quick ratio (Acid-test ratio) 2011 IBM Quick ratio=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 higher quick ratio which meaning that Microsofts shot-term liquidity is better 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 Inventory 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 Micro soft has a higher inventory turnover which means a better 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 quicker 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 better abilities to use its assets to efficiently generate sales. . 6 Solvency Ratios a. Debt ratio 2011 IBM Debt ratio=Total lia bilitiesTotal 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 incomeAverage 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 process 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 Microsoft Gross profit rate=Net sales-Cost of goods soldNet sales=69,943-56,77869,943=18. 8% Higher 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 buckle under 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 Key Business Ratios All 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 increased and exceeded the industry average and is a little bit better. Its stock performed well 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 obvi ous growth and improvement. 4. frequent-size relative Statements Analysis appurtenance 1 is IBM commonality-Size comparative degree Balance Sheets A 0. 4% point increase in cash and equivalents, which is likely balanced with a 0. 87% point extraction in Marketable securities, both steady 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. addendum 2 is IBM Common-Size Comparative Income Statement A 0. 33% fall 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 inventorie s, 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. elan 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 nose candy% 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 g enerates 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 Retained 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 revenues sufficient to compensate for this asset growth. And in retained earnings shows a better in expense control and higher competency in generate revenues. So in conclusion, IBM did a quite good job in 2011. V. Prospective An alysis and Summary Here, based on what I have calculated and the interpretation. We can definitely come to a conclusion that IBM is still growing and it did very good in most parts.As the trend analysis listed above, the faster growing total revenue and the sulky growing total cost shows a quite good control of the cost. IBM used the relatively same cost generates more revenue. And IBM was becoming 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 2010, we can anticipate a good performance in 2012 and farthermost 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 business es, 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 Report construe 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% Other accounts receivable 1,481,000 1,134,000 1. 27% 1. 00% Finished 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% prepay expenses other current assets 5,249,000 4,226,000 4. 51% 3. 2% Tot al 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, lease machines oth property, gross 40,124,000 40,289,000 34. 46% 35. 51% Less Accumulated depreciation 26,241,000 26,193,000 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-term 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. 51% 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 paper 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-term 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 reserves 3,989,000 3,486,000 3. 43% 3. 07% Executive compensation 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 warranty 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% Retained earnings 104,857,000 92,532,000 90. 06% 81. 56% Treasury stock, at cost 110,963,000 96,161,000 95. 30% 84. 76% Net deceitful gains (losses) on cash flow hedge derivatives 71,000 -96,000 0. 06% -0. 08% Foreign currency translation 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 Percent Report Date 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 99,870,0 00 100. 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 ongoing 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 selling, 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% Intellectual property & custom development income 1,108,000 1,154,000 1. 04% 1. 16% Foreign currency trans action 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 continuing trading operations before income taxes 21,003,000 19,723,000 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 spectacular-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 numb er of employees 433,362 426,751 0. 41% 0. 43% Number 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% Depreciation 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 disposition 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% T otal 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% Intellectual property & custom development income 94. 14% 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) f rom 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. state & 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) de ferred 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 share-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% Finished 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% 9 7. 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 asset s 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 Euros 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 cu rrent 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 reserves 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% 101. 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