IBM: Analyzing the Financial Situation

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Introduction

Financial analysis has the benefit of assisting businesses to flourish. Attributable to financial statement analysis, organizations can determine and establish their monetary strengths, weaknesses, and connections. This can enable organizations to have sufficient liquidity to satisfy all its debts. Organizational executives should uphold adequate rates of operating capital to finance its tasks and service existing debt all through the year (Strickland, 2019).

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Small companies with no access to extensive credit lines are mainly susceptible to issues emanating from deficiency of working capital. Comprehension of the best approach to analyze the financial situation of the organization will enable it know the latest concerning the monetary situation and undertake steps to tackle possible fiscal deficits.

Identification of the International Organization

International Business Machines (IBM) is an international computer technology and IT consulting business that has its headquarters in New York, United States. The corporation has a consistent account that dates back to the nineteenth century. Its operations entail the manufacture and sale of both computer software and hardware with concentration on the former. The organization also provides infrastructural, hosting, and consultancy services that vary from mainframe computers to nanotech. With more than 400,000 workers around the world, IBM ranks among the biggest and most lucrative information technology companies globally (Strickland, 2019). The company owns more patents when compared with any other United States-anchored technology organization and has established more than eleven research labs across the globe.

IBM engages engineers, scientists, specialists, and sales representatives in more than 160 nations. Under the corporation’s products, IBM runs five business sectors that encompass Global Technology Services, Software, Global Financing, Systems and Technology, and Global Business Services. Global Technology Services mainly offers IT infrastructure over and above business process operations (de Paiva Britto et al., 2019).

Attributable to organizational clients shifting from the purchase of huge mainframe computers and conventional software, the company contends with reducing revenue in the last about three years. IBM considerably ventures in the development of new merchandises, for example, data analytics and artificial intelligence programs and cloud software. The organization has endeavored to provide a significant proportion of its services online.

New business practices recently established by IBM are yet to develop as the organization endeavored. Moreover, profitability has kept on declining particularly in traditional software segments, over and above hardware and specialist services. Monetary ratios act as some of the numerous strategies that stock analysts in IBM employ in the evaluation of the organization or line of production (Strickland, 2019). No one constantly forecasts stock price progress; nevertheless, ratios usually underscore the organization’s possible weaknesses and strengths. Monetary ratios can provide mixed indicators regarding the corporation’s monetary health. The realized financial estimates are sometimes inconsistent among organizations and sectors over time.

Analysis of the Financial Viability of IBM

The 2018s acted as a crucial year for IBM and its customers. The corporation resumed to enhanced development at a time that other companies were getting ready to get into phase two of their digital recreations. In 2018, the corporation realized nearly 80 billion US dollars in profits and working earnings per share of $14 (Strickland, 2019). In the course of that year, the organization resumed to revenue development, increased its earnings per share, and realized stable margins. IBM’s strategic and continued venture in innovative expertise led to enhanced competitive stand and profitability dynamics. Contributions that tackle data, artificial intelligence, cloud, cyber security, and analytics accounted for more than 50% of the corporation’s revenue.

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In 2018, IBM’s revenue increased by about 25% that of 2014 and improved its financial viability. The corporation’s venture of more than 5 billion dollars in research and development generated thousands of breakthrough innovations that accounted for the 26th successive year of American patent control. From over 9,000 patents offered to IBM in 2018, nearly 2,000 were associated with artificial intelligence and 1,400 with cyber security, higher than any other corporation in the US (de Paiva Britto et al., 2019). The concentration on breakthrough innovation generated the organization’s increasing portfolio and drove outcomes. The entire cloud revenues were over 19 billion dollars in 2018, which was 12% more than the ones of 2017.

In the fourth quarter of 2018, IBM realized 16 customer service agreements of over 100 million dollars. This assisted in the optimization of business practices on the organizational cloud. Currently, more than 47 of the Fortune 50 rely on IBM Cloud, which marks a great stride in its success (de Paiva Britto et al., 2019).

The organization is the global enterprise artificial intelligence leader. Resolutions enhanced by its executives are enabling it ensure fundamental decisions and organizational endeavors through over 20,000 customer engagements, in 20 sectors. IBM continues to pioneer innovations in speech and natural language processing, machine learning, and computer vision with its Blockchain being the international leader in the facilitation of trust and transparency across business networks through establishment of novel approaches for customers to share and protect data.

Effects of Instability in the Foreign Currency Markets on IBM

The instability in the trading session of 2018 highly influenced the organization’s stock and profitability. After closure of the market, the S&P 500 and NASDAQ Composite Index dropped by 1.5% and 2% respectively (Cortada, 2019). Similar to its competitors, IBM felt the impact and its profitability decreased by 1.8%, which was higher than the case of S&P 500. The continuing trade war between America and China embarked on a different course when President Trump created import limitations of 10% on 200 billion dollars of Chinese commodities and restricted China’s venture in the United States expertise corporations. Organizations based in China are not permitted to invest over 25% in any American technology corporation.

The restrictions imposed by President Trump are endeavors to safeguard the intellectual property of American technological assets. Later, the Trump government enforced tariffs on up to 60 billion US dollars of Chinese commodities (de Paiva Britto et al., 2019). In line with many analysts, the United States market appears overestimated. Stocks of the majority of corporations are trading either close to their annual highs or have embarked of different record levels. The United States 10-year bond yield rose considerably to about 3%, driven by the powerful monetary situation. The Fed’s recent increase in interest levels might also influence the entire stock market with higher rates making stocks appear less appealing to investors than high bond yields.

How IBM Mitigates the Inherent Risks

Global Financing includes two main practices of funding essentially carried out through IBM Credit over and above remanufacturing and remarketing. IBM Credit marks a completely owned subsidiary of the organization that has a direct access to capital markets. Through its finance management endeavors, IBM Credit facilitates the realization of information technology systems, software, and other services by the corporation’s customers in its areas of expertise. Such monetary agreements are mostly for services and products that are crucial to the customers’ business practices (Cortada, 2019).

The corporation ensures extensive credit appraisal of its customers before extending funding. This has the benefit of thorough understanding of customer base and generation of insight into the funded services and goods.

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Financing endeavors enable IBM to alleviate the intrinsic risks in its business practices. Such aspects enable the organization to address threats linked to financing, credit, and residual worth. Moreover, risk mitigation practices generate extensive returns on equity. Organizational endeavors also uphold lasting partnership with its customers through numerous phases of the information technology life cycle, from original purchase and expertise improvements to asset disposition resolutions. IBM has a long-term practice of taking alleviation measures in different circumstances (de Paiva Britto et al., 2019). Some of the organizational endeavors necessitate shifting credit risk to third parties, encompassing credit insurance, or selling equipment under lease agreements.

Conclusion

Financial statement analysis has the merit of assisting organizations to flourish. Understanding of the best approach to examine the financial condition of the company will allow it identify the latest about the financial situation and necessary measures. In 2018, IBM grasped almost 80 billion US dollars in profits and operational earnings per share of $14. The insecurity in the trading session of 2018 greatly influenced the organization’s stock and productivity. The Fed’s augment in interest rates might also sway the entire stock market making stocks appear less attractive to shareholders compared with high bond yields. Financing efforts enable IBM to lessen the intrinsic risks in its business endeavors.

References

Strickland, E. (2019). IBM Watson, heal thyself: How IBM overpromised and underdelivered on AI health care. IEEE Spectrum, 56(4), 24-31.

de Paiva Britto, J. N., Costa Ribeiro, L., Araújo, L. T., da Matta Machado, G. T., & da Motta e Albuquerque, E. (2019). Knowledge flows, changing firms’ competences and patent citations: an analysis of the trajectory of IBM. Economics of Innovation and New Technology, 28(4), 317-347.

Cortada, J. W. (2019). IBM: The rise and fall and reinvention of a global icon. MIT Press. Web.

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BusinessEssay. (2022) 'IBM: Analyzing the Financial Situation'. 20 September.

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BusinessEssay. 2022. "IBM: Analyzing the Financial Situation." September 20, 2022. https://business-essay.com/ibm-analyzing-the-financial-situation/.

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