1. IBM was mentioned in the chapter as having an uneven performance. Let’s check
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Question
1. IBM was mentioned in the chapter as having an uneven performance. Let’s check this out. Go to its website, 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.
2. Click on “Stock Chart.” How has IBM’s stock been doing recently?
3. Click on “Financial Snapshot.” Assuming IBM’s historical price-earnings ratio is 18, how does it currently stand?
4. Assuming its annual dividend yield is 2.5 percent, how does it currently stand?
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5. Assuming IBM’s historical “LT” (long-term) debt/equity is 100 percent, how does it currently stand? Generally speaking, is that good or bad?
6. Assuming its historical return on assets is 10 percent, how does it currently stand? Generally speaking, is that good or bad?
Explanation / Answer
2. As per the stock chart, the stock price closed at $153.23 which is almost average of the 52 week high (182.79) and 52 week low (139.13). Recently the stock has not dwindled much is averaging around $150 only which means the company is performing at par these days and no recent major annoucement has yet been made which may push the price of stocks upwards. However, seeing 52 week high it can be said the company's stock price has huge potential for touching the same high level after the last quarter profits will be declared.
3. Currently price earning ratio of the company stands at 12.80 times which is comparatively lower than the historical P/E ratio of 18. Price earning ratio is the indicator that how much dollar investors are willing to pay for $1 of earnings. In the given case, since the current P/E ratio is 12,80, this means that investors are willing to pay only $12,80 for each $1 of eanings in the company. This means over the time investors are willing to pay less for the shares of the company than they were paying earlier.
4. Currently annual dividend yield stands at 3.80% which is much higher than the company's standard dividend yield of 2.5%. This means that investors are getting more dividend income per price of each share. If dividend yield is high then, investors prefer to buy that stock as their earnings are maximized. This is a good sign for the company.
5. LT debt to equity ratio is 211%, which means that the company is having debt more than double the value of equity in the company. Earlier this was 100% which means that company was having equally balanced debt equity mix. Howvever, now the same is not balanced and more of the debt is infused in the company. Ideally, LT debt to equity should be 200%. This ratio is worse in case of IBM which may bring the problem of liquidity in the long run.
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