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IBM Corporation

In the seven years (since 1994), that Lou Gerstner reigned over IBM, the company’s earnings per

share increased an average of 27% per year. This remarkable increase in earnings did not go

unnoticed by the securities markets. Indeed, the company’s market value grew from less than $30

billion to over $200 billion during the period.

Use the following financial statement data to:

1. Decompose IBM’s ROE (by quarter) and discuss the factors (and trends) that contribute to

Big Blue’s profitability

2. Evaluate IBM’s Revenue growth, Receivables, and Gross margins and over the period. Be

sure to control for seasonality (e.g., compute the same quarter to same quarter change in these


3. Evaluate IBM’s Earnings per Share (basic), and Identify the factors most responsible for the

increase in IBM’s earnings

Write your answers in Standard English. Be specific in your references, provide details of your

computations, and be thorough in your explanations