ERCISE 1. IBM was mentioned in the chapter as having an uneven performance. Let\
ID: 2496020 • Letter: E
Question
ERCISE 1. IBM was mentioned in the chapter as having an uneven performance. Let's check this out. Go to its Web site, www.ibm.com, and follow the steps below. Under "Information for" at the bottom of the page, select "Investors." Select Financial Snapshot" on the next page. Click on "Stock Chart." How has IBM's stock been doing recently? Click on "Financial Snapshot." Assuming IBM's historical price-earnings ratio is 18, how does it currently stand? Assuming its annual dividend yield is 2.5 percent, how does it currently stand? 2. 3. 4.Explanation / Answer
Answer:
The answer is based on reference to site of IBM for details of Stock chart and financial snapshot details are as captured from www.IBM.com. on 9-Dec 2015.
Answer (2)
if we analyze this stock chart, IBM’s stock is under performing and the graph shows the a downfall over a period. The last price 136.61 is almost near 52 week low i.e 131.65. So we can say stock is following a diminishing trend recently.
Answer (3)
Historical price earnings ratio = 18
Current price earning ratio is 9.6
PE ratio is given by Market price/Earning per share. This means market price of shares per unit of Earning has declined over the period. Shareholder were earlier ready to pay $ 18 for each $1 of earning but now they are ready to pay only $9.6 for $1 earning.
So overall performance and expectation of shareholder seems to be declining trend.
Answer (4)
Previous Annual dividend yield = 2.5 %
Current dividend yield = 3.8%
Since dividend yield has increased from 2.5% to 3.8% which means company is trying to build faith amongst investors by paying out more cash dividends. This also means company do not have much profitable projects to invest so it is paying more as dividend.
Answer (5)
Previous Long termDebt/Equity = 100%
Current Long termdebt/Equity = 242
Comparing this ratio we know that over the time company has significantly increased its long term debt which is not a very good sign. It implies company has more burden to pay off the long term debt. Borrowed funds are increased significantly.
In risk analysis this ratio is a way to determine a company's leverage. The ratio is calculated by taking the company's long-term debt and dividing it by the total value of its preferred and common stock. The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought to be more risky because they have more liabilities and less equity.
So generally speaking its not good .
Answer (6)
Historical return on asset = 10%
Current return on asset = 13.10
This is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
So on comparing this ratio it seems IBM has performed well on this and its current return on asset has increased and it is a good sign for the company to keep investors faith up.
Generally speaking more return on asset is good.
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