performance analysis of hp, ibm & dell
TRANSCRIPT
INTRODUCTION
This is a report paper of performance analysis of the company entitled HP, IBM and DELL. The
ratio analysis of these companies will help to compare the financial performance of the company.
The period of analysis is from 2008 to 2010. The performance of HP, IBM and DELL has been
analyze in terms of
Liquidity Ratios
Activity Ratios
Debt Ratios
Profitability Ratios
Market Value Ratios
OBJECTIVES
The objectives of this report is to
Analyze the performance of HP, IBM and DELL using ratios to judge the liquidity,
leverage, activity, profitability and market position.(from the perspective of current and
potential investor’s view point).
To identify current performance of the world re-known IT companies which are HP, IBM
& DELL and come up with our own conclusion and see if the companies current share
prices truly reflect the real picture and performance.
Provide some suggestions for these companies order to improve their performance.
SCOPE
Ratio analysis is one of the important performance indicators for these companies. In this report,
through the all scholarly journals and articles it will be more visible to the reader that which IT
company is the market leader.
METHODOLOGY
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As we has been assigned to prepare the report on “performance analysis of the HP, IBM &
DELL”. Our data collection is based on secondary data which collect from the annual report of
HP, IBM & DELL companies. We will collect information from different sources like books,
websites, journal reviews etc. After gathering all the information we have prepared the report.
LIMITATIONS
Although we have tried our level best to provide the most up to date and accurate information
about these companies in this report but there were a few limitations. Because of which we were
unable to present the report to the level of accuracy which we wanted to obtain. The limitations
were-
The information that I have used in this report were gathered from secondary source
which included financial statements of these companies from 2008 - 2010 and also
information provided from the company’s website.
The time frame for writing this report was restricted to 3 months or a single semester. If
we were allowed more time, we would surely be able to present the information more
descriptively.
COMPANY PROFILE
Hewlett-Packard Company or HP is an American multinational
information technology corporation headquartered in Palo Alto, California, USA that provides
products, technologies, software, solutions and services to consumers, small- and medium-sized
businesses (SMBs) and large enterprises, including customers in the government, health and
education sectors. The company was founded in a one-car garage in Palo Alto by William (Bill)
Redington Hewlett and Dave Packard. Currently, HP is the world's leading PC manufacturer,
operating in nearly every country. It specializes in developing and manufacturing computing,
data storage, and networking hardware, designing software and delivering services. Major
product lines include personal computing devices, enterprise, and industry standard servers,
related storage devices, networking products, software and a diverse range of printers, and other
imaging products. HP markets its products to households, small- to medium-sized businesses and
enterprises directly as well as via online distribution, consumer-electronics and office-supply
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retailers, software partners and major technology vendors. HP also has strong services and
consulting business around its products and partner products.
International Business Machines abbreviated IBM and nicknamed
"Big Blue", is a multinational computer technology and IT consulting corporation headquartered
in Armonk, New York, United States. The company is one of the few information technology
companies with a continuous history dating back to the 19th century. IBM manufactures and
sells computer hardware and software (with a focus on the latter), and offers infrastructure
services, hosting services, and consulting services in areas ranging from mainframe computers to
nanotechnology. Samuel J. Palmisano is the chairman and CEO of IBM. IBM has been well
known through most of its recent history as one of the world's largest computer companies and
systems integrators. With over 388,000 employees worldwide, IBM is one of the largest and
most profitable information technology employers in the world. IBM holds more patents than
any other U.S. based technology company and has eight research laboratories worldwide. The
company has scientists, engineers, consultants, and sales professionals in over 170 countries.
Dell was ranked the 25 th largest company on the fortune 500 list
by Forbes magazine. It’s founded by Michael Dell with a startup capital of 1000$ in a college
dorm room at the University of Texas. His vision was to produce some similar personal products
like IBM which would meet individual consumer needs. The strategy of the company was slight
different than the other personal computer manufacturers. Dell wanted to build a computer
system according to the individual requirements. In 1985, Mr. Dell got a family loan of $300000
dollars to begin a new company which is today’s Dell Inc. Later the same year the company
introduced its first company designed computer, the Turbo PC. The computer boasted an Intel
8088 processor that ran at an impressive speed of 8MHz. The computer systems, which were
advertised in computer magazines nationally, were purchased through direct sales. Given a list of
options, the customers choose the components they wanted and the computers were built as they
were ordered. By ordering the components wholesale, the company was able to provide great
pricing, which proved to be much lower than their competitors’. The company’s business
formula proved to be a great success and the first year of trading they grossed more than $73
million dollars.
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LITERATURE REVIEW
Ratio Analysis is the starting point in developing the information desired by the analyst. Ratio
analysis provides only a single snapshot, the analysis being for one given point or period in time.
In the ratio analysis it is possible to define the company ratio with a standard one. For this report
we have gone through time series analysis.
1. LIQUIDITY RATIOS
The liquidity of a firm is measured by its ability to satisfy its short-term obligations as they come
due. Liquidity refers to the solvency of the firm’s overall financial position-the ease with which
it can pay its bills. These liquidity ratios actually show the relationship between a firm’s cash and
other current assets to its current liabilities. Two ratios discussed under Liquidity ratio are:
I. Current Ratio
II. Quick/ Acid Test Ratio
I. Current Ratio
Current ratio indicates the extent to which current liabilities are covered by those assets expected
to be converted to cash in the near future and thereby, it shows the firm’s ability to meet its
short-term obligations. Generally, higher the current ratio, the more liquid the firm is considered
to be.
Current Ratio ¿Current Assets
Current Liabilities
II. Quick / Acid test Ratio
This ratio is an indicator of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets. The higher the
quick ratio, the better is the position of the company.
Quick or Acid Test Ratio ¿(Current Assets−Inventory )
Current Liabilities
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2. ACTIVITY RATIOS
Activity Ratios are the financial statement ratios that measure how effectively a business uses
and controls its assets. In other words, they measure the speed with which various accounts are
converted into sales or cash-inflows or outflows. Four types of activity ratios are discussed
below:
I. Inventory Turnover Ratio
II. Average Collection Period
III. Average Payment Period
IV. Total Asset Turnover Ratio
I. Inventory Turnover Ratio
The ratio is regarded as a test of efficiency and indicates the rapidity with which the company is
able to move its merchandise, that is, the liquidity of a firm’s inventory.
Inventory Turnover Ratio ¿Cost of Goods Sold(COGS)
Inventory
II. Average Collection Period
Average Collection Period is the approximate amount of time that it takes for a business to
receive payments owed, in terms of receivables, from its customers and clients and it is useful in
evaluating credit and collection policies.
Average Collection Period¿ Accounts ReceivablesAverage Sales Per Day
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III. Average Payment Period
Average Payment Period is defined as the number of days a company takes to pay off credit
purchases.
Average Payment Period¿ Accounts PayablesAverage Purchases per Day
IV. Total Asset Turnover Ratio
The Total Asset Turnover Ratio indicates the efficiency with which the firm uses its assets to
generate sales. Generally, higher a firm’s total asset turnover, the more efficiently its assets have
been used.
Total Asset Turnover ¿Net SalesTotal Assets
3. DEBT RATIOS
Debt management ratios reveal:
1) The extent to which the firm is financed with debt and
2) Its likelihood of defaulting on its debt obligations.
The more debt a firm has, the greater its risk of being unable to meet its contractual debt
payments. Debt ratios include:
I. Times-Interest-Earned (TIE) Ratio
II. Debt Ratio
I. Times Interest Earned Ratio
This ratio measures the extent to which operating income can decline before the firm is unable to
meet its annual interest cost. The higher the value the better able the firm is to fulfill its interest
obligation.
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Times Interest Earned (TIE) Ratio¿Earningsbefore Interest∧Taxes (EBIT )
Interest Expenses
II. Debt Ratio:
Debt ratio measures the proportion of total assets financed by the firm’s creditors. The higher the
ratio, the greater the amount of other people’s money being used to generate profit.
Debt Ratio¿ Total LiabilitiesTotal Assets
4. PROFITABILITY RATIOS
Profitability is the net result of a number of policies and decisions. Profitability ratios show the
combined effects of liquidity, asset management and debt on operating results. There are four
important profitability ratios that we are going to analyze:
I. Gross Profit Margin
II. Operating Profit Margin
III. Net Profit Margin
IV. Earnings per Share (EPS)
V. Return on Asset (ROA)
VI. Return on Equity (ROE)
I. Gross Profit Margin
The gross profit margin is used to analyze how efficiently a company is using its raw materials,
labor and manufacturing-related fixed assets to generate profits. A higher margin percentage is a
favorable profit indicator.
Gross Profit Margin¿ Gross ProfitNet Sales
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II. Operating Profit Margin
The operating profit margin ratio indicates how much profit a company makes after paying
for variable costs of production such as wages, raw materials, etc.
Operating Profit Margin ¿Earningsbefore Interest∧taxes (EBIT )
Net Sales
III. Net Profit Margin
The net profit margin, also known as net margin, indicates how much net income a company
makes with total sales achieved.
Net Profit Margin ¿Earningsavailable for common stockholders
Net Sales
IV. Earnings per Share (EPS)
The earnings per share ratio is mainly useful for companies with publicly traded shares. This
signifies the profit of the company that accrues to each share.
Earnings per Share ¿Earnings available forCommon Stockholders
Number of shares of CommonStock Outstanding
V. Return on Assets (ROA)
Return on assets is a key profitability ratio which measures the amount of profit made per
dollar of assets that they own. It measures the company’s ability to generate profits before
leverage with its own assets.
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Return on Asset (ROA)¿Earningsavailable forCommonStockholders
Total Assets
VI. Return on Equity (ROE)
Return on equity measures the return earned on the common stockholders’ investment in the
firm.
Return on Equity (ROE) ¿Earningsavailable forCommonStockholders
Common Equity
5. MARKET VALUE RATIOS
The market value ratios relate the firm’s stock price to its earnings and book value per share.
These ratios give management an indication of what investors think of the company’s past
performance and future prospects. In this section, we are going to have a discussion mainly on
two types of ratios:
I. Price/ Earnings ratio
II. Market/ Book ratio
I. Price / Earnings Ratio
The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", or simply "multiple") is a
measure of the price paid for a share relative to the annual net income or profit earned by the
firm per share.
Price / Earnings Ratio ¿Current market Price of Stock
EPS
II. Market / Book Ratio
Market-to-Book Ratio is the ratio of the current share price to the book value per share. It
measures how much a company worth at present, in comparison with the amount of capital
invested by current and past shareholders into it.
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Market / Book Ratio ¿Current market Price of Stock
Book value per share
PERFORMANCE ANALYSIS
1. LIQUIDITY RATIOS
I. Current Ratio
Company Name 2010 2009 2008
HP 1.10 1.22 0.98
IBM 1.19 1.36 1.15
DELL 1.49 1.28 1.36
Industry Average 1.26 1.29 1.16
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Current Ratio
TotalIndustry Avg
HP: The Current Ratio of HP for the year 2010 is 1.10, where the industry average is 1.26; for
2009, it is 1.22 where industry average is 1.29 and for 2008, it is 0.98, where industry average is
1.16. The Current Ratio is highest for the year 2009, where it slightly reachable the industry
average and lowest for the year 2008, where it is quite below the industry average. The overall
performance of the company in terms of Current Ratio is fair compared to industry average.
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IBM: The Current Ratio of IBM for the year 2010 is 1.19, where industry average is 1.26; for
2009, it is 1.36 where industry average is 1.29 and for 2008, it is 1.15, where industry average is
1.16. IBM’s Current Ratio is highest for the year 2009, where it exceeds the industry average and
lowest for 2008, where it is still above the industry average. The overall performance of IBM in
terms of Current Ratio is good compared to industry average.
DELL: The Current Ratio of Dell for the year 2010 is 1.49, where industry average is 1.26; for
2009, it is 1.28 where industry average is 1.29 and for 2008, it is 1.36, where industry average is
1.16. The Current Ratio is highest for the year 2010 and lowest for 2008. In all of these years
except 2009, Dell’s Current Ratio is higher compared to industry average, thus indicating a very
good performance in terms of Current Ratio.
After analyzing the ratios for the 3 years, it is apparent that Dell is in a comparatively better
position out of the 3 firm’s consideration.
II. Quick/ Acid test Ratio
Company Name 2010 2009 2008
HP 0.97 1.08 0.83
IBM 1.13 1.29 1.09
DELL 1.42 1.22 1.30
Industry Average 1.17 1.20 1.07
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Quick / Acid Test Ratio
TotalIndustry Avg
HP: The Quick Ratio of HP for the year 2010 is 0.97, where the industry average is 1.17; for
2009, it is 1.08 where the industry average is 1.20 and for 2008, it is 0.83, where industry
average is 1.07. The Quick Ratio is highest for the year 2009 and lowest for 2008. The firm has
performed poorly in terms of Quick Ratio when compared to the industry average.
IBM: The Quick Ratio of IBM for 2010 is 1.13, where industry average is 1.17; for 2009, it is
1.29 where industry average is 1.20 and for 2008, it is 1.09, where industry average is 1.07. The
Quick Ratio of IBM is highest for 2009 and it is exceeds the industry average and lowest for
2008 which is above the industry average. It is indicating a good performance in terms of Quick
Ratio.
DELL: The Quick Ratio of DELL for the year 2010 is 1.42, where industry average is 1.17; for
2009, it is 1.22 where industry average is 1.20 and for 2008, it is 1.30, where industry average is
1.07. The Quick Ratio is highest for 2010 and lowest for 2009, but in all the 3 years, this ratio is
well above the industry average, indicating a very good performance in terms of Quick Ratio.
After analyzing the ratios for the 3 years, it is apparent that Dell is in a comparatively better
position out of these 3 firms and HP is weakest.
2. ACTIVITY RATIOS
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I. Inventory Turnover Ratio
Company Name 2010 2009 2008
HP 14.86 14.28 11.41
IBM 21.98 20.84 21.46
DELL 38.51 41.52 57.84
Industry Average 25.12 25.55 30.24
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
10
20
30
40
50
60
Inventory Turnover
TotalIndustry Avg
HP: The Inventory Turnover Ratio of HP for the year 2010 is 14.86, where the industry average
is 25.12; for 2009, it is 14.28 where industry average is 25.55 and for 2008, it is 11.41, where
industry average is 30.24. The Inventory Turnover Ratio is highest for 2010 and lowest for 2008
and for all these 3 years, this ratio is much below the Industry Average. A low Inventory
Turnover Ratio is a signal of inefficiency and can also imply poor sales or excess inventory
along with poor liquidity, possible overstocking, and obsolescence, but it may also reflect a
planned inventory buildup in the case of material shortages or in anticipation of rapidly rising
prices. Thereby, based on Inventory Turnover Ratio, HP has performed poorly.
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IBM: The Inventory Turnover Ratio of IBM for the year 2010 is 21.98, where the industry
average is 25.12; for 2009, it is 20.48 where industry average is 25.55 and for 2008, it is 21.46,
where industry average is 30.24. The Inventory Turnover Ratio is highest for 2010 and lowest
for 2009, where it is below the industry average. Although this ratio is below the industry
average for the three years indicating some degree of inefficiency, however it can still be said
that IBM had a fair performance based on this ratio.
DELL: The Inventory Turnover Ratio of Dell for the year 2010 is 38.51, where the industry
average is 25.12; for 2009, it is 41.52 where industry average is 25.55 and for 2008, it is 57.84,
where industry average is 30.24. The Inventory Turnover Ratio is highest for 2008 and lowest
for 2010. Although Dell’s Inventory Turnover Ratio has been decreasing since 2008, yet this
ratio remains above the industry average for all the three years. A high inventory turnover ratio
can either indicate strong sales or ineffective buying (the company buys too often in small
quantities, therefore the buying price is higher).A high inventory turnover ratio can indicate
better liquidity, but it can also indicate a shortage or inadequate inventory levels, which may lead
to a loss in business. Thus, based on the high inventory turnover ratio, Dell had very good
performance for the 3 years.
After analyzing the ratios for the 3 years, it is apparent that Dell is in a comparatively better
position out of the 3 firms considered and HP is the weakest.
II. Total Asset Turnover Ratio
Company Name 2010 2009 2008
HP 1.01 1.00 1.04
IBM 0.88 0.88 0.95
DELL 1.59 1.57 2.31
Industry Average 1.16 1.15 1.43
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
0.5
1
1.5
2
2.5
Total Asset Turnover
TotalIndustry Avg
HP: The Total Asset Turnover ratio of HP for the year 2010 is 1.01, where industry average is
1.16; for 2009, it is 1.00, where industry average is 1.15 and for 2008, it is 1.04, where industry
average is 1.43. The total asset turnover ratio is highest for the year 2008 and lowest for 2009.
For all the three years, the ratio remains below the industry average indicating that HP is not
using its assets to generate sales as efficiently as some of its competitors.
IBM: The Total Asset Turnover ratio of IBM for the year 2010 is 0.88, where industry average
is 1.16; for 2009, it is 0.88 where industry average is 1.15 and for 2008, it is 0.95, where industry
average is 1.43. The total asset turnover ratio is highest for the year 2008 and it remains constant
for 2009 and 2010. For the three years considered, this ratio for IBM remains much below the
industry average, indicating that it is the least efficient in using its assets to generate sales and
thereby its performance based on this ratio, is very poor.
DELL: The Total Asset Turnover ratio of Dell for the year 2010 is 1.59, where industry average
is 1.16; for 2009, it is 1.57 where industry average is 1.15 and for 2008, it is 2.31, where industry
average is 1.43. The total asset turnover is highest for the year 2008 and lowest for 2009. For the
three years considered, this ratio for Dell remains above the industry average, indicating efficient
use of assets to generate sales and thereby a good performance based on this ratio.
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After analyzing the ratios for the 3 years, it is apparent that Dell is in a comparatively better
position out of the 3 firms considered and IBM is the weakest.
III. Average Collection Period Ratio
Company Name 2010 2009 2008
HP 53.52 52.69 52.20
IBM 39.60 40.92 38.41
DELL 66.33 58.92 38.58
Industry Average 53.15 50.84 43.06
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
10
20
30
40
50
60
70
Average Collection Period
TotalIndustry Avg
HP: The Average Collection Period of HP for the year 2010 is 53.52 days, where the industry
average is 53.15 days; for 2009, it is 52.69 days where industry average is 50.84 days and for
2008, it is 52.20 days, where industry average is 43.06 days. The Average Collection Period is
highest for the year 2010, where it is exceeds the industry average and lowest for the year 2008,
where it is much higher than the industry average. This longer collection period implies too
liberal and inefficient credit collection performance.
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IBM: The Average Collection Period of IBM for the year 2010 is 39.60 days, where the industry
average is 53.15 days; for 2009, it is 40.92 days where industry average is 50.84 days and for
2008, it is 38.41 days, where industry average is 43.06. The Average Collection Period is highest
for the year 2009 and lowest for 2008. For all these years, this ratio is lower to the industry
average, indicating prompt payments by debtors and reduced chances of bad debts. Thus, the
firms overall performance based on this ratio is good.
DELL: The Average Collection Period of Dell for the year 2010 is 66.33 days, where the
industry average is 53.15 days; for 2009, it is 58.92 days where industry average is 50.84 days
and for 2008, it is 38.58 days, where industry average is 43.06 days. The Average Collection
Period is highest for the year 2010 and lowest for 2008. However for all these 3 years except
2008, this ratio of Dell is much higher than the industry average, indicating too liberal and
inefficient credit collection policies, which needs to be redefined. Thus Dells performance in
terms of this ratio is poor.
After analyzing the ratios for the 3 years, it is apparent that IBM is in a comparatively better
position out of the 3 firms considered and DELL is the weakest.
IV. Average Payment Period Ratio
Company Name 2010 2009 2008
HP 77.95 88.23 81.98
IBM 75.56 74.6 63.09
DELL 117.54 135.88 86.40
Industry Average 90.35 99.57 77.16
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
20
40
60
80
100
120
140
Average Payment Period
TotalIndustry Avg
HP: The Average Payment Period of HP for the year 2010 is 77.95 days, where the industry
average is 90.35 days; for 2009, it is 88.23 where industry average is 99.57 days and for 2008, it
is 81.98 days, where industry average is 77.16 days. The Average Payment Period is highest for
the year 2009 and lowest for 2010. Based on this ratio HP has performed comparatively well
according to industry average.
IBM: The Average Payment Period of IBM for the year 2010 is 75.56 days, where the industry
average is 90.35 days; for 2009, it is 74.6 days where industry average is 99.57 days and for
2008, it is 63.09 days, where industry average is 77.16 days. The Average Payment Period is
highest for the year 2010 and lowest for 2008. Based on this ratio IBM has performed very good
according to industry average.
DELL: The Average Payment Period of Dell for the year 2010 is 117.54 days, where the
industry average is 90.35 days; for 2009, it is 135.88 days where industry average is 99.57 days
and for 2008, it is 86.40 days, where industry average is 77.16 days. The Average Payment
Period is highest for the year 2009 and lowest for 2008. Based on this ratio Dell has performed
poorly according to industry average.
After analyzing the ratios for the 3 years, it is apparent that IBM is in a comparatively better
position out of the 3 firms considered and DELL is the weakest position.
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3. DEBT RATIOS
I. Debt Ratio
Company Name 2010 2009 2008
HP 67.24% 64.49% 65.54%
IBM 79.58% 79.13% 87.59%
DELL 79.88% 83.24% 83.88%
Industry Average 75.57% 75.62% 79.04%
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Debt Ratio
TotalIndustry Avg
HP: The Debt Ratio of HP for the year 2010 is 67.24%, where the industry average is 75.57%;
for 2009, it is 64.49% where industry average is 75.62% and for 2008, it is 65.54%, where
industry average is 79.04%. The ratio is highest for 2010 and lowest for 2009. Based on this ratio
HP has performed really well according to industry average.
IBM: The Debt Ratio of IBM for the year 2010 is 79.58%, where the industry average is
75.57%; for 2009, it is 79.13% where industry average is 75.62% and for 2008, it is 87.59%,
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where industry average is 79.04%. The ratio is highest for 2008 and lowest for 2009. Based on
this ratio IBM has performed relatively well according to industry average.
DELL: The Debt Ratio of DELL for the year 2010 is 79.88%, where the industry average is
75.57%; for 2009, it is 83.24% where industry average is 75.62% and for 2008, it is 83.88%,
where industry average is 79.04%. The ratio is highest for 2008 and lowest for 2010. Based on
this ratio Dell has performed very poor according to industry average.
After analyzing the ratios for the 3 years, it is apparent that HP is in a comparatively better
position out of the 3 firms.
II. Times Interest Earned (TIE) Ratio
Company Name 2010 2009 2008
HP 27.53 16.98 22.43
IBM 52.46 45.25 25.40
DELL 17.25 13.58 34.30
Industry Average 32.41 25.27 27.38
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
10
20
30
40
50
60
TIE Ratio
TotalIndustry Avg
HP: The TIE Ratio of HP for the year 2010 is 27.53, where the industry average is 32.41; for
2009, it is 16.98 where industry average is 25.27 and for 2008, it is 22.43 where industry average
is 27.38. The ratio is highest for 2010 and lowest for 2009. Based on this ratio HP has not
performed well according to industry average.
IBM: The TIE Ratio of IBM for the year 2010 is 52.46, where the industry average is 32.41; for
2009, it is 45.25 where industry average is 25.27 and for 2008, it is 25.40 where industry average
is 27.38. The ratio is highest for 2010 and lowest for 2008. Based on this ratio IBM has
performed really well according to industry average.
DELL: The TIE Ratio of Dell for the year 2010 is 17.25, where the industry average is 32.41;
for 2009, it is 13.58 where industry average is 25.27 and for 2008, it is 34.40 where industry
average is 27.38. The ratio is highest for 2008 and lowest for 2009. Based on this ratio Dell has
performed poorly according to industry average.
After analyzing the ratios for the 3 years, it is apparent that IBM is in a comparatively better
position out of the 3 firms considered and Dell is the weakest.
4. PROFITABILITY RATIOS
I. Net Profit Margin Ratio
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Company Name 2010 2009 2008
HP 6.95% 6.69% 7.04%
IBM 14.85% 14.02% 11.90%
DELL 4.28% 2.71% 4.06%
Industry Average 8.69% 7.81% 7.67%
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Net Profit Margin
TotalIndustry Avg
HP: The graph shows that, in 2010 HP generates 6.95% Net profit margin where industry
average is 8.69%; in 2009 it generates 6.69% Net profit margin where industry average is 7.81%;
in 2008 it generates 7.04% Net profit margin where industry average is 7.67%. The Net profit
margin was highest in 2008 and lowest in 2009. The 3 years Net Profit Margin is below the
industry average which means HP has not perform well.
IBM: The graph shows that, in 2010 it generates 14.85% Net profit margin where industry
average is 8.69%; in 2009 it generates 14.02% Net profit margin where industry average is
7.81%; in 2008 it generates 11.90% Net profit margin where industry average is 7.67%. The Net
profit margin was highest in 2010 and lowest in 2008. The Net Profit Margin ratio is much better
than industry average which means IBM profit performance is very good.
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DELL: The graph shows that, in 2010 it generates 4.28% Net profit margin where industry
average is 8.69%; in 2009 it generates 2.71% Net profit margin where industry average is 7.81%;
in 2008 it generates 2.85% Net profit margin where industry average is 7.67%. The Net profit
margin was highest in 2010 and lowest in 2009. But the performance of the company is very
poor compare to industry average.
After analyzing the 3 years ratios, we can see that IBM’s net profit margin ratios are well above
from the ratios of others. IBM’s ratio is high because their costs are relatively lower than others.
This lower cost generally occurs because of their efficient operations. On the other hand, Dell
position is completely opposite.
II. Gross Profit Margin Ratio
Company Name 2010 2009 2008
HP 23.76% 23.59% 24.03%
IBM 46.07% 45.73% 44.06%
DELL 18.53% 17.51% 17.93%
Industry Average 29.45% 28.94% 28.67%
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00%
5.00%
10.00%
15.00%
20.00%25.00%
30.00%
35.00%
40.00%
45.00%50.00%
Gross Profit Margin
TotalIndustry Avg
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HP: The graph shows that, in 2010 it generates 23.76% gross profit margin where industry
average is 29.45%; in 2009 it generates 23.59% gross profit margin where industry average is
28.94%; in 2008 it generates 24.03% gross profit margin where industry average is 28.67%. The
gross profit margin was highest in 2008 and lowest in 2009. But the company 3 years gross profit
margin is below the industry average.
IBM: The graph shows that, in 2010 it generates 46.07% gross profit margin where industry
average is 29.45%; in 2009 it generates 45.73% gross profit margin where industry average is
28.94%; in 2008 it generates 44.06% gross profit margin where industry average is 28.67%. The
gross profit margin was highest in 2010 and lowest in 2008. The overall performance of the
company is much better than the industry average. And IBM gross profit margin is almost two
times higher comparing to others.
DELL: The graph shows that, in 2010 it generates 18.53% gross profit margin where industry
average is 29.45%; in 2009 it generates 17.51% gross profit margin where industry average is
28.94%; in 2008 it generates 17.93% gross profit margin where industry average is 28.67%. The
gross profit margin was highest in 2010 and lowest in 2009. The overall performance of the
company is poor compare to industry average.
After analyzing the 3 years ratios, we can see that IBM’s gross profit margin ratios are well
above from the ratios of others. And Dell has the lowest gross profit margin which means they
may be unable to pay expenses or earn profit.
III. Operating Profit Margin Ratio
Company Name 2010 2009 2008
HP 9.11% 8.85% 8.85%
IBM 19.33% 19.00% 16.49%
DELL 5.58% 4.11% 5.22%
Industry Average 11.34% 10.65% 10.19%
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%16.00%18.00%20.00%
Operating Profit Margin
TotalIndustry Avg
HP: The graph shows that, in 2010 it generates 9.11% operating profit margin where industry
average is 11.34%; in 2009 it generates 8.85% operating profit margin where industry average is
10.65%; in 2008 it generates 8.85% operating profit margin where industry average is 10.19%.
The operating profit margin was highest in 2010 and lowest in 2009 and 2008. HP performance
is below the industry average.
IBM: The graph shows that, in 2010 it generates 19.33% operating profit margin where industry
average is 11.34%; in 2009 it generates 19.00% operating profit margin where industry average
is 10.65%; in 2008 it generates 16.49% operating profit margin where industry average is
10.19%. The operating profit margin was highest in 2010 and lowest in 2008. IBM 3 year’s
performance is very well comparing to the industry average.
DELL: The graph shows that, in 2010 it generates 5.58% operating profit margin where industry
average is 11.34%; in 2009 it generates 4.11% operating profit margin where industry average is
10.65%; in 2008 it generates 5.22% operating profit margin where industry average is10.19%.
The operating profit margin was highest in 2010 and lowest in 2009. But the overall performance
of the company is poor compare to industry average.
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After analyzing the 3 years ratios, we can see that IBM’s operating profit margin ratios are well
above from the ratios of others. This means they are keeping their costs under control and also
their sales are increasing faster than costs, and the firm is in a relatively liquid position. On the
other hand, Dell’s position is completely opposite.
IV. Return on Equity (ROE) Ratio
Company Name 2010 2009 2008
HP 21.66% 18.91% 21.39%
IBM 64.37% 59.32% 91.60%
DELL 22.34% 12.49% 22.15%
Industry Average 36.12% 30.24% 45.05%
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%
100.00%
Return on Equity (ROE)
TotalIndustry Avg
HP: The ROE Ratio shows that, in 2010 it earned 21.66 cents on each dollar of equity where
industry average is 36.12 cents; in 2009 it earned 18.91 cents on each dollar of equity where
industry average is 30.24 cents; in 2008 it earned 21.39 cents on each dollar of equity where
industry average is 45.05 cents. Return on equity was highest in 2010 and lowest in 2009. But
the overall performance of the company is not relatively good compare to industry average.
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IBM: The ROE Ratio shows that, in 2010 it earned 64.37 cents on each dollar of equity where
industry average is 36.12 cents; in 2009 it earned 59.32 cents on each dollar of equity where
industry average is 30.24 cents; in 2008 it earned 91.60 cents on each dollar of equity where
industry average is 45.05 cents. Return on equity was highest in 2008 and lowest in 2009. The
overall performance of the company is way better than industry average because it generates
almost two times higher return on equity compare to others.
DELL: The ROE Ratio shows that, in 2010 it earned 22.34 cents on each dollar of equity where
industry average is 36.12 cents; in 2009 it earned 12.49 cents on each dollar of equity where
industry average is 30.24 cents; in 2008 it earned 22.15 cents on each dollar of equity where
industry average is 45.05 cents. Return on equity was highest in 2010 and lowest in 2009. But
the overall performance of the company is not relatively good compare to industry average.
After analyzing the 3 years ratios, we can see that, in 2010, 2009 and as well as 2008, ROE of
IBM is much higher than the other companies. That means they are generating high returns to
their shareholder's equity and paying their shareholders off handsomely, creating substantial
assets for each dollar invested.
V. Return on Asset (ROA) Ratio
Company Name 2010 2009 2008
HP 7.04% 6.67% 7.35%
IBM 13.08% 12.32% 11.26%
DELL 6.83% 4.26% 9.35%
Industry Average 8.98% 7.75% 9.32%
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Return on Asset (ROA)
TotalIndustry Avg
HP: The ROA Ratio shows that, in 2010 it earned 7.04 cents on each dollar of asset investment
where industry average is 8.98 cents; in 2009 it earned 6.67 cents on each dollar of asset
investment where industry average is 7.75 cents; in 2008 it earned 7.35 cents on each dollar of
asset investment where industry average is 9.32 cents. Return on assets was highest in 2008 and
lowest in 2009. HP’s overall performance is not relatively good compare to industry average.
IBM: The ROA Ratio shows that, in 2010 it earned 13.08 cents on each dollar of asset
investment where industry average is 8.98 cents; in 2009 it earned 12.32 cents on each dollar of
asset investment where industry average is 7.75 cents; in 2008 it earned 11.26 cents on each
dollar of asset investment where industry average is 9.32 cents. Return on assets was highest in
2010 and lowest in 2008. The overall performance of the company is way better than industry
average because it generates almost two times higher return on assets compare to others.
DELL: The ROA Ratio shows that, in 2010 it earned 6.83 cents on each dollar of asset
investment where industry average is 8.98 cents; in 2009 it earned 4.26 cents on each dollar of
asset investment where industry average is 7.75 cents; in 2008 it earned 9.35 cents on each dollar
of asset investment where industry average is 9.32 cents. Return on assets was highest in 2008
and lowest in 2009. Dell’s overall performance is not relatively good compare to industry
average.
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After analyzing the 3 years ratios, we can see that, in 2010, 2009 and as well as 2008, ROA of
IBM is much higher than the other companies. This high return of assets results from IBM’s high
basic earning power and low interest cost resulting from its less use of debt than others. Basic
earning power and interest cause IBM’s net income relatively high.
VI. Earnings Per Share (EPS) Ratio
Company Name 2010 2009 2008
HP $ 4.00 $ 3.24 $ 3.45
IBM $ 12.16 $ 10.34 $ 9.19
DELL $ 1.37 $ 0.73 $ 1.27
Industry Average $ 5.84 $ 4.77 $ 4.64
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
Earnings Per Share (EPS)
TotalIndustry Avg
HP: The EPS shows that, in 2010 it earned $ 4.00 per share where industry average is $ 5.84; in
2009 it earned $ 3.24 per share where industry average is $ 4.77; in 2008 it earned $ 3.45 per
share where industry average is $ 4.64. Earnings per Share were highest in 2010 and lowest in
29 | P a g e
2009. But the overall performance of the company is relatively good compare to industry
average.
IBM: The EPS shows that, in 2010 it earned $ 12.16 per share where industry average is $ 5.84;
in 2009 it earned $ 10.34 per share where industry average is $ 4.77; in 2008 it earned $ 9.19 per
share where industry average is $ 4.64. Earnings per Share were highest in 2010 and lowest in
2008. The overall performance of the company is way better than industry average because it
generates almost three times higher earnings per Share compare to others.
DELL: The EPS shows that, in 2010 it earned $ 1.37 per share where industry average is $ 5.84;
in 2009 it earned $ 0.73 per share where industry average is $ 4.77; in 2008 it earned $ 1.27 per
share where industry average is $ 4.64. Earnings per Share were highest in 2010 and lowest in
2009. Dell’s overall performance is very poor compare than industry average and other
company.
After analyzing the 3 years ratios, we can see that IBM’s earnings per share ratios are well above
from the ratios of others. IBM’s ratios indicates that they are growing rapidly which means they
are doing very well and company is finding more ways to make more money. On the other hand,
Dell’s position is very bad. They should be more focus on their business.
5. MARKET VALUE RATIOS
I. Price / Earnings (P/E) Ratio
Company Name 2010 2009 2008
HP 10.31 15.60 10.26
IBM 13.31 12.23 9.40
DELL 9.89 19.67 8.06
Industry Average 11.17 15.83 9.24
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HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
02468
101214161820
Price / Earnings (P/E) Ratio
TotalIndustry Avg
HP: The P/E Ratio shows that, in 2010 investors were paying $ 10.31 on each $ 1.00 of earning
where industry average is $ 11.17; in 2009 investors were paying $ 15.60 on each $ 1.00 of
earning where industry average is $ 15.83; in 2008 investors were paying $ 10.26 on each $ 1.00
of earning where industry average is $ 9.24. Price/ Earnings Ratio were highest in 2009 and
lowest in 2008. But the overall performance of the company is relatively good compare to
industry average.
IBM: The P/E Ratio shows that, in 2010 investors were paying $ 13.31 on each $ 1.00 of earning
where industry average is $ 11.17; in 2009 investors were paying $ 12.23 on each $ 1.00 of
earning where industry average is $ 15.83; in 2008 investors were paying $ 9.40 on each $ 1.00
of earning where industry average is $ 9.24. Price/ Earnings Ratio were highest in 2010 and
lowest in 2008. But the overall performance of the company is relatively good compare to
industry average.
DELL: The P/E Ratio shows that, in 2010 investors were paying $ 9.89 on each $ 1.00 of
earning where industry average is $ 11.17; in 2009 investors were paying $ 19.67 on each $ 1.00
of earning where industry average is $ 15.83; in 2008 investors were paying $ 8.06 on each $
1.00 of earning where industry average is $ 9.24. Price/ Earnings Ratio were highest in 2009 and
lowest in 2008. But the overall performance of the company is not relatively good compare to
industry average.
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After analyzing the 3 years ratios, we can see that, 3 firms are not in a position where we can say
that one company is better than other because 3 years P/E ratio is fluctuating. P/E ratio indicates
how much the market is willing to pay for the company’s earnings.
II. Market / Book (M/B) Value Ratio
Company Name 2010 2009 2008
HP 2.23 2.95 2.19
IBM 8.57 7.26 8.61
DELL 3.35 4.99 4.65
Industry Average 4.72 5.07 5.15
HP IBM DELL HP IBM DELL HP IBM DELL2010 2009 2008
0
1
2
3
4
5
6
7
8
9
Market/Book (M/B) Value Ratio
TotalIndustry Avg
HP: The M/B Ratio shows that, in 2010 investors are currently paying $ 2.23 on each $ 1.00 of
book value of stock where industry average is $ 4.72; in 2009 investors are currently paying $
2.95 on each $ 1.00 of book value of stock where industry average is $ 5.07; in 2008 investors
are currently paying $ 2.19 on each $ 1.00 of book value of stock where industry average is $
5.15. Market-to-Book Ratio was highest in 2009 and lowest in 2008. But the overall performance
of the company is very poor compare to industry average.
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IBM: The M/B Ratio shows that, in 2010 investors are currently paying $ 8.57 on each $ 1.00 of
book value of stock where industry average is $ 4.72; in 2009 investors are currently paying $
7.26 on each $ 1.00 of book value of stock where industry average is $ 5.07; in 2008 investors
are currently paying $ 8.61 on each $ 1.00 of book value of stock where industry average is $
5.15. Market-to-Book Ratio was highest in 2008 and lowest in 2009. The overall performance of
the company is way better than industry average because it generates almost two times higher
compare to others.
DELL: The M/B Ratio shows that, in 2010 investors are currently paying $ 3.35 on each $ 1.00
of book value of stock where industry average is $ 4.72; in 2009 investors are currently paying $
4.99 on each $ 1.00 of book value of stock where industry average is $ 5.07; in 2008 investors
are currently paying $ 4.65 on each $ 1.00 of book value of stock where industry average is $
5.15. Market-to-Book Ratio was highest in 2008 and lowest in 2010. But the overall performance
of the company is relatively good compare to industry average.
By analyzing 3 years ratio we see that IBM is performing well than others by improving profit,
increasing their market share as well as offering higher quality products. Its higher Market to
Book Value ratio indicates that the stock of IBM has more attractive outlook than other
companies.
FINDINGS
After analyze the performance of HP, IBM and DELL we are found different things. Generally
the higher the current ratio the more liquid a firm is considered to be. A current ratio of 2 is
occasionally cited as acceptable. Here we can see that Dell has pretty well current ratio
considering other companies in 2008 although it is not 2 or close to 2. And next is IBM which is
1.15 in 2008. This is because IBM and DELL have less current liabilities in 2008 than HP. But in
2009 it shows that IBM current ratio has gone up as well as HP but DELL current ratio goes
down though it was not significantly decreased. So the ratios for the 3 years, it is apparent that
Dell is in a comparatively better position out of the 3 firm’s consideration.
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A quick ratio of 1.0 or greater is occasionally recommended. It provides a better measure of
overall liquidity. Here our shows that only IBM and DELL have the quick ratio more than 1.
That means they have more liquidity asset than HP in the year 2008. In the year 2009 IBM quick
ratio increase and HP also improved in 2009 and it is more than 1. On the other hand DELL
quick ratio slightly decreased. In 2010 except DELL all other 3 companies quick ratio goes down
though IBM didn’t go less than 1 but HP are below 1 these means HP has failed to maintain ideal
quick ratio.
An inventory turnover for Manufacturer Company should be 4 or more than 4. In analyzing
inventory turnover ratio we can see all the companies in all year has a good turnover. Dell has
done exceptionally well in inventory turnover in year 2008, 2009 and year 2010. But IBM
inventory turnover goes up and down in 2008 to 2010.
The higher a firm’s total asset turnover the more efficiently its assets have been used. This
measure is probably of greatest interest to management, because it indicates whether the firms
operations have been financially efficient. Here except IBM other two companies have greater
value that means they are more efficiently using their asset. But IBM turnover on asset per year
is not good enough.
The average collection period is meaningful only in relation to the firm’s credit terms. Less the
collection period more it is good for a company. And we can see that only IBM can maintain
credit terms less than industry average in all the year 2008, 2009 and 2010. But other two
companies’ credit term to customers extend the industry average. HP and DELL need more
periods to collect its cash from their customers. It means these two companies has poorly
managed credit or collection department. So they should try to organize their collection
department more efficiently so that it keeps less than industry average.
Average payment period is the average of time needed to pay accounts payable. Suppliers or
trade credit are most interested in the average payment period because it provides insight into
firms bill paying patterns. And here except IBM Company other two need more or less than 100
days to pay their credits though it is not a good sign for these companies. Because suppliers and
trade creditors is very important factor for every manufacturer company.
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The debt ratio measures the proportion of total assets financed by the firm’s creditors. The higher
the ratio the greater the amount of other people’s money to being used to generate profit. Except
HP other two companies IBM and DELL has financed more than 75% of its assets with debt. But
HP has financed on average of 65% of its assets with debt. That means these two companies
have more financial leverage.
TIE Ratio measures the firm’s ability to make contractual payments. The higher the value the
better able the firm is to fulfill its interest obligations. A value close to 5 is preferable. IBM is
comparatively better position to others. DELL should be more focus in their EBIT to increase it.
Else it may bring negative effect in future for the company.
The net profit margin is commonly cited measures of the firm’s success with respect to earnings
on sales. The higher the firms net profit margin the better. IBM has exceptionally good net profit
margin, HP has standard profit margin in 2008-2010 but DELL position is completely opposite
to IBM. DELL should be more focus in their cost and expense and need to increase their sales.
Higher the gross profit margin the better. It measures the percentage of each sales dollar
remaining after the firm has paid for its goods. IBM has greater percentage of gross profit
margin. But DELL gross profit is lesser than other companies. So it should try to increase the
gross profit margin percentage.
Operating Profit Margin represents the pure profits earned on each sales dollar. Operating profit
margin is pure because they measure only the profits earned on operations and ignore interest
taxes and preferred stock dividend. A high profit margin is preferred. IBM has exceptionally
good operating profit margin in all the three year. But on the other hand DELL has very low
profit margin which is not preferable for the company. So DELL should focus in their cost and
expense. They should try to reduce their cost and increase their operating profit in terms of sales.
CONCLUSION
After analyzing this whole report, we can come up with the conclusion that IBM is doing
exceptionally well in terms of all ratios. It’s a good sign for them because they are way ahead
35 | P a g e
than their competitors. Most of the ratios shows that IBM is way better than industry average
because it generates almost two times higher compare to others.
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