Financial Analysis Assignment Evaluating Financial Position Of IBM
Question
Task:
Undertake your own research to obtain an organization’s annual report. You can use one from an organization with which you are familiar or one which is freely available on the internet or from ASIC.
To prepare this financial analysis assignment, you must answer these questions (150 to 180 words for each answer):
To who is this report disseminated and how does this take place?
Why might these recipients need or want the information contained in the annual report?
What information is contained in the report? Describe the contents and explain what it disclosed about the organization’s financial activities during the year.
Is there any evidence that those within the organization used consolidation or conversion procedures to analyse the financial data which was available?
Has the organisation disclosed any asset or liability valuations? If so what do they indicate?
Is there any indication of any discrepancies, unusual features of queries about the financial data? Describe.
Does it appear that the organisation claimed all available benefits and allowances? Explain.
Did the organisation record details of its income and expenditure? Is evidence provided? Provide details.
Examine the financial summaries for information about the financial status of the organisation. Did the organisation show a profit?
What sorts of recommendations are made and what suggestions are made regarding business activities for the upcoming year? Are they constructive?
Is the report and any recommendations clear and logical?
Has the organisation complied with its statutory requirements? Explain.
If possible, locate a copy of the annual report from the previous year.
Compare the two reports and comment on whether or not the projections from the first report were accurate.
Were the recommended changes/ improvements made? How did they impact on the next year’s report (if at all)?
Answer
1. Dissemination of the report
To improve the management's understanding and increase investors' confidence, IBM has published a report about its performance for the last year of 2020. This financial analysis assignment has been addressed to the investors and shareholders. The report furnished information about the current financial position of the organization, details about dividend policy, analysis of results, and outlook for the coming year. This report is being made available to shareholders and investors in electronic form if they choose on the corporate website, or if they do not have Internet access then by postal mail upon request.
2. Recipients and Their need for Information
The recipients here are the shareholders and investors. Annual reports of IBM are one way for companies to disseminate information to their shareholders and the public. While each organization may uniquely present its report, several standardized reporting formats must be used across all industries to ensure consistency. Organization annual reports provide detailed financial statements to shareholders and are typically issued once per year for the previous fiscal year. The information in these reports is intended to give investors an idea of the state of the organization and should help them make informed decisions about their equity investments. Investors may look to several metrics to make financial evaluations, including ratios such as price-to-earnings or debt-equity ratios. Investors must evaluate their stocks using a variety of measurement tools so they can determine the value and long-term prospects of these assets. Shareholders use financial statements to gauge the success of their investments and make voting decisions at annual shareholder meetings. The statements show investors how well an organization is doing and its financial health. Financial data can be gleaned from various ratios, including liquidity ratios, debt ratios, profitability ratios, and efficiency ratios. Investors use these metrics to gauge the performance of publicly held companies.
3. Contents of the Report
Annual reports often are used to give an overview of the organization. A picture of what is going on inside the business may be conveyed in the annual report with some analysis, interpretation, and assessment of the data and description provided by management. The annual report of IBM is a snapshot of the organization at the end of its fiscal year, but it also contains projections for the upcoming year and beyond. The past figures are compared to sales goals, expenses, and profit targets. A well-researched annual report can reveal years of earnings trends and if an organization is meeting its goals each year. Investors may use organization information to gauge whether they should continue with their investment or sell shares. Annual reports provide shareholders with a detailed overview of what the organization has done throughout the last fiscal year. The steady increase in pages and amount of information packed into the annual report reflects investor concerns about corporate governance, executive compensation, and overall corporate performance. Each annual report includes a mission statement and history, information about the organization's performance in the past year, and details of any awards won. Some achievements are financial; others may be related to research or marketing.
4. Financial Data
The annual report is the final accountability document for any organization. It gives all the financial details related to the corporate for that year. The annual report of IBM clearly illustrates the consolidation of financial data. The achievements made by the organization and its pursuits towards objectives and strategies are neatly separated into strategic sections to show their respective parts of strategic directions and their performance level and potential directions for the future. Financial data is consolidated in the sense that strategic performance achievements, objectives, and strategies are divided into separate categories to indicate their respective strategic approaches and show their future performance level and potential. The report includes a summary of the financial performance in that year and includes a table showing the profit or loss. At the bottom of the page, there is a brief paragraph stating the overall performance compared to previous years and the future outlook for the organization. An international market analysis is a comprehensive study of competitors' strengths, profit margin, and progress in the report. Also, it gives ample information about financial ratios and figures in depth. It also covers the infrastructural overview of the business market and prospects for future business expansion.
5. Valuation of Assets and Liabilities
IBM has maintained records of its achievements regarding specific fields, such as its equity, assets, stock market prices, and liabilities. The decrease in total consolidated revenue of 2.2 per cent as reported and 1.6 per cent year over year adjusted for currency is due largely to mixed results in total annuity revenue and transactional revenue, which reduced overall revenue by 3.8 per cent and 4.0 per cent year over year in 2020 when compared with total revenue of $93.3 billion in the first quarter of 2019, an increase of 6.0 per cent and 5.7 per cent year over year. Traditionally, annuities are used in long-term care benefit programs. A financial guarantee is met when an insurer makes a guaranteed payment at some specific point in the future or over a specified period. In the same vein, in its report, the corporation noted that the decline in transactional revenue had been offset by the decline in the value of the foreign currency. As far as acquisitions completed in the past 12 months, it shows how they contributed to revenue growth. The report mentions several valuations such as growth in earnings, market share, total sales, customer satisfaction, and performance. These valuations describe how well an organization is performing.
6. Discrepancies
The annual report of IBM is an essential document to investors and other stakeholders. It also summarizes the key information for the previous fiscal year, thereby allowing readers to analyze whether or not the firm has performed optimally with its yearly budget, maintain proper track of business agencies and teams, and formulate business strategies for the following year.
In this annual report, the data and information presented are consistent and do not contain any discrepancies. The tables and charts present no serious calculation errors, or rather, have been carefully checked to ensure that they are accurate. In the financial insights and reports, the organizations must ensure sufficient consistency between the different assets at all times. The analysis provided in this report proves that the organization has no discrepancy items or mismatches between its assets. The reports are submitted to various stakeholders and investors, so there must be no discrepancies in the data included in this annual report.
7. Benefits and Allowances
The annual report of IBM describes the expenses incurred during the past year in detail. It includes compensation to the officer's legal costs. It also mentions the promotion, advertising, and sales. The sales promotion was done by giving customers samples and providing them with certain discounts. Compensation consists of salary, bonus, incentives, and non-discretionary performance awards. The organization expects to continue to provide employees with a variable compensation program designed to reward employees based upon organization performance and the employee's contribution to achieving those objectives. Such objectives include the degree of responsibility, execution capability, cost consciousness, team participation, and the overall performance of their department within the organization. The annual report discloses that salary and bonus compensation are charged against incurred income. The report also describes selling expenses, including salaries, commissions, and travel costs associated with promoting and selling products and services. General and administrative expenses, including salaries, legal fees, office supplies, income taxes, insurance, and rent, are reported separately and charged against income.
8. Income and Expenditure
According to the report, IBM continued to attract investors in the past fiscal year. The company's revenue had a growth rate of five per cent from $79.7 billion to $83.8 billion based on currency exchange rates. However, when taking into account the divestment of its commodity hardware business (mainframes and systems), revenue increased by nine per cent (IBM Corporation, 2020). This year it has made 25 acquisitions and invested more than $12 billion in research and development and about $10 billion in capital expenditures to make it ready for the future while remaining competitive in every era. As the report indicates, the company focuses on cloud computing, mobile, security, and big data analytics, a combination that will uniquely position it for growth in 2022 (IBM Corporation, 2020). More than 40 per cent of IBM's pre-tax income from continuing operations comes from businesses that were not part of the company five years ago - namely cloud, mobility, analytics, commerce, and security. In the past few years, IBM has acquired 25 businesses to bring its acquisition total to 100 since 2013. In 2020 alone, it spent more than US$45 billion buying 25 companies while increasing research spending by 5 per cent to US$6 billion -investing in artificial intelligence and cognitive computing-and moving to a $19 billion two-year plan intended to get the company ready for the future while remaining competitive in every era.
9. Financial Summaries
The reports show that the revenue for the organization IBM Global Technology Services increased 4 per cent, driven by growth in IBM Cloud, public cloud services, and managed infrastructure services. The Technology Services and Cloud Platforms segment provides a portfolio of enterprise IT infrastructure services, cloud and platform services, integrated technology services, including strategic outsourcing, and other technology-related services. The company also offers an extensive network of global data centres that provides hosting and related services for various applications. Revenue for Managed Infrastructure Services grew 8 per cent, with 5 points of the growth attributed to Red Hat. It represents a 10% increase over the prior year, with strategic imperatives representing 30% of the segment revenue. The company's annual report summarizes its performance in terms of points to simplify the ability to understand how profitable it has been. The integrated segments cloud revenue was $5.9 billion and increased 10% (IBM Corporation, 2020). Cloud gross profit margin was down 1% year over year, impacted primarily by increased hosting utilization, the accelerated ramp of certain new work, and hosting price reductions. Total cloud revenue exit run rate of $5.8 billion received a 2% increase over the exit run rate in September.
10. Recommendations Made
The annual report states IBM has had a strategic change from embedded systems to the cloud system. According to the company, the two main reasons for the transition are to help clients build data-driven applications and gain security insights. The company plans to develop its cloud infrastructure service to provide its clients with greater efficiency and lower cost. To enhance competitiveness and distinguish itself from other companies, IBM contributes proactive support for customers and actions in real-time.
The report stated that IBM is moving across industries globally and making Watson, a cognitive technology on the IBM cloud, available to millions of consumers. Students can also master a subject with Watson, and teachers can address their unique learning needs. Teaming up with EdX and Cengage, IBM is helping to make a new online learning experience that is tailored specifically to the way kids learn. With Watson, students can master a subject at their own pace, while teachers can customize content and track their students' progress in real-time. It is recommended in the report that IBM should quickly move forward in this industry which is its core strength, by providing excellent services to the customers. The recommendation in the report constructively suggested that the organization should redefine the idea of what Watson is for and how different it can get from just answering questions to providing meaningful insights in a better way. It can be done by customizing the services and workshops for the clients and making them feel happy about their service from IBM.
11. Logical and Clear Recommendations
The annual report of IBM for the year 2020 is relevant in that it gives a detailed view of the group's progress and its performance. The management accounts focus mainly on its financials and how the organization was able to achieve its targets, and what challenges were faced. It does not make special recommendations but has a separate section for issues that may need to be addressed urgently. The report also focuses on how the group will develop new strategies to enhance its performance through efficient leadership, innovative ideas, and policies. The presentation and explanation of the annual report are very clear in each section.
A certain extent of professionalism can be seen in the layout, font choice, and colour application centred on the report. There are multiple suggestions for change in response to the problems and recommendations mentioned in the annual report. Still, at the same time, this change is expected to implement in a short period. Though the company did not achieve all the targets it set out to achieve, it still enjoyed very good growth in various aspects, including finance. The achievement level was far above many of its independent competitors operating in the market. However, the performance in terms of non-financial figures clearly shows that improvement is needed in those areas specifically.
12. Statutory Requirements
The IBM company records deferred tax expense for differences between the company’s book and tax basis of assets and liabilities, based on the enacted statutory tax rate in the jurisdiction in which it will realize taxable income or gain. It means that the company has a fiscal tax rate that is different from the statutory tax rate in the country. The company expects to deduct more than the compensation costs they have already recorded. If the tax authorities in charge allow them to make this deduction, they will record this revenue reduction as deferred tax assets.
Comparison of two reports and The Changes Made.
A comparison of the previous and the present report of IBM shows that the company had met the projections they have set for themselves in the last year. Last year IBM recommended making changes in AI and cloud technology that would make information more readily available and this year’s report shows that they have achieved their goal of doing that and by doing so there was a surge in revenue for the company.
References
IBM Corporation. (2020). IBM Annual Report 2020 (pp. 1-143). Financial analysis assignment New York: IMB Corporations. Retrieved from https://www.ibm.com/annualreport/assets/downloads/IBM_Annual_Report_2020.pdf
IBM Corporation. (2019). IBM Annual Report 2019 (pp. 1-150). New York: IMB Corporations. Retrieved from https://www.ibm.com/annualreport/assets/downloads/IBM_Annual_Report_2020.pdf
