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Go to page 25 or 26 of the annual report to see a table of contents for notes to financial statements. Click on Note A - Significant Accounting Policies to answer question 1.

Describe the nature of the companys business and companys primary products or services.

IBM (International Business Machines) is the world's largest information technology company that provides hardware and software for a line of business servers, storage products, customer microchips, and application software. Its also part of the Fortune 100 businesses. The company once had a revenue of 88 billion in 2000 and now currently in 2014, 4th quarter ending with revenue of 5.5 billion.

What date did IBMs fiscal year end?

In 2013 and 2014 IBMs fiscal year ended in Dec 31 for both years.

What method of depreciation does IBM use? (See page 88 or 89)

According to my research, I was able to identify the method of depreciation IBM used is a straight line method for both years 2013 and 3014

Check page 92 or 93 and answer the following questions:

What type of inventory does IBM have and do they use Lower of Cost or Market principle?

What are considered cash equivalents?

Refer to the Consolidated Statement of Financial Position (balance sheet) on page 80 or 81 and Consolidated Statement of Earnings and Cash Flows Statement to calculate the following ratios for 2014 and 2013: Note the amounts in financial statements are in millions.

Round ratios to 2 decimal place	2014	2013	Change	Explain what information each ratio provides
Debt ratio = Total liabilities / Total asset
Current ratio = Total current assets/Total current liabilities
Gross profit % = Gross profit/Total revenue
Inventory turnover = Cost of goods sold (see b) / Average merchandise inventory
Average days inventory is held = 365/inventory turnover
Cash ratio = cash & cash equivalents / Total current liabilities
Acid-test (Quick) ratio = (cash & cash equivalents + Marketable securities + net trade receivables)/ Total current liabilities
A/R turnover = Revenue from sales/Average trade accounts receivable See a below for more information
Average collection period = 365/A/R turnover
Asset turnover = Total Revenue / Average total assets
Return on Assets = Net income + interest expense / Average total Assets
Times interest earned ratio = (net income before income tax expense + interest expense)/interest expense
Debt to equity ratio = Total liabilities / Total Equity
Earnings per share (EPS)-Basic For EPS # see statement of earnings
Profit margin ratio = Net income / Total revenue

a) Use Revenue from Sales for net credit sales in the formula and use only Notes and Accounts Receivable-Trade amounts. For 2014 ratio, Average A/R is calculated by dividing the sum of 2014 A/R & 2013 A/R by 2. You need to also divide the sum of 2013 & 2012 A/R by 2 for 2013 ratio.

Use Cost of sales instead of Cost of Goods Sold in the formula

6.) Compare the following ratios with industry averages. Print industry averages from Reuters.com Under news and market tab, click on stocks. Enter companys name, choose financials option from the top options.

		IBM	Industry	Difference
Acid-test (Quick) ratio		1.20	2.79
Current ratio		1.25	2.93
Debt to Equity ratio		241.65	8.03
Profit margin ratio
Receivable turnover		3.30	5.12
Inventory turnover		20.99	253.04
Asset turnover ratio		0.74	1.08

7.) Prepare a horizontal analysis (see chapter 14 for an example) for the following items in the statement of financial position using 2013 as the base year. You must use Microsoft Excel to complete this table. You can then insert the table into the word document.

			Increase (Decrease)
	2014	2013	$ Amount	Percent (round to 2 decimal places)
Total Cash & Cash equivalents
Total Current Assets
Net Plant, Property and Equipment
Total Assets
Total Current Liabilities
Total Liabilities
Total IBM Stockholders Equity

8.) Prepare a vertical analysis (see chapter 14 for an example) in relation to sales (total revenue as the denominator) for the following items in the income statement. You must use Microsoft Excel to complete this table. You can then insert the table into the word document.

2014			2013
	$ Amount	Percent	$ Amount	Percent (2 decimal places)
Total Revenue		100%		100%

Total Cost
Gross Profit
Research, Develop and Engineering
Selling, general, and Admin. Expenses
Income before income taxes
Provision for Income Taxes
Net Income

In conclusion, briefly discuss the improvement or lack thereof in financial position of the company. Use the ratio, horizontal and vertical analyses to support your opinion. If you do not support your answer with the above ratios and analyses, you will not receive credit for this question.

What did you learn from this project? Do you think it was useful?

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