IBM Financial Statements and Financial Ratios

For this final section, I have chosen about 16 different financial ratios to calculate for IBM from 2015 to 2019.  I also review some important IBM's financial ratios. I first start with defining the financial ratio.  Next, I supply the financial formulas for calculating the specific ratio.  Finally, I offer a brief analysis of important financial ratios.

IBM Current Ratio.

IBM’s current ratio ended in 2015 at 1.24.  In the next five years, their current ratio would fall to 1.02 and 2019.  As noted previously, the gold standard for the current ratio is 1.0.  By bringing their current ratio in line with the standard, the company is telling investors that they have enough funds to be solving for short to moderate term.  Further, this also indicates to investors that the company is attempting to better optimize the usage of cash by only holding enough funds to cover annual expenses.

IBM Total Asset Turnover.

IBM’s total asset turnover ended 2015.74.  As of 2019, their total asset turnover fell to .51.  This shows that the company is continually underutilizing their total assets.  To mitigate this issue, the firm may wish to divest or sell underperforming assets or buildings that are not optimally used.  Also, reducing their cash position to slightly below 1.0 as a current ratio could assist in improving the total asset turnover for the organization.

IBM Return on Equity.

As with most mature companies, IBM has taken on substantial debt to drive up there return on equity.  In 2015, the company’s return on equity was a mind-blowing 91.4%.  In the next five years, the return on equity would fall to 44.9%.  Regardless, for a company that has sales falling continuously, this is still an above-average return on equity for the industry sector.  Unfortunately, though, if the company is not using equity to finance growth, then they are using debt.  With debt comes elevated risk from the leverage.

IBM Debt ratio.

The company’s debt ratio in 2015 was approximately 30%.  In the next five years, the debt ratio would climb to 35.5%.  When a company has increased debt and falling revenues, this indicates that the strategy cannot go on forever.  There’s just no way for a company to be able to handle increased debt payments while the revenues are falling off.  Because of this, the executive team needs to shift strategies to focus more on equity financing and growth as compared to utilizing leverage to elevate return on equity performances.