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= 1.188
Quick Ratio =
=
0.9885
Financial Leverage
= 6.3209
Debt to Equity
= 1.2772
1B. Comparing International Business Machines Corporation (IBM) to their biggest
competitors Accenture plc (ACN) and Microsoft Corporation (MSFT).
#Accenture plc. (ACN)
#Microsoft Corporation (MSFT)
When compared International Business Machines Corporation (IBM) to, both
competitors Accenture plc. (ACN) and Microsoft Corporation (MSFT) have a much
higher debt to equity ratio.
2. The Times Interest Earned ratio for International Business Machines Corporation
(IBM) is currently 48.72%, as of December 31, 2012. According to the income
statement, total earnings before interest and taxes were 22,361,000 whereas total
interest expense was 459,000
#http://finance.yahoo.com
Page 3 of 4
3. Credit Position of the Company
a. The International Business Machines Corporation (IBM) bond I chose went down
from AA- in Sep. 2nd 2005 to A+ on Aug. 5th 2008*2
b. International Business Machines Corporation (IBM) has never defaulted.*
c. Fitch recently affirmed its ratings of IBM Corporation.*
Standard and Poors rates IBM Corporation at AA- / Moodys rates IBM Corporation
at Aa3.*
D. IS THE BOND RATING ACCURATE?
All of the information I found about IBM, show that the bond ratings would be accurate
according to the popularity of the company. Most of the rating has given to International
Business Machines Corporation (IBM) is not less than A rating. In additional,
International Business Machines Corporation (IBM) has seen huge growth over the time.
Also, the bond for IBM is so good but this one is fixed rate. Comparing to Microsoft
cooperation IBM has higher Debt to Equity ratio.
2
*http://bv.mergent.com/view/scripts/MyMOL/index.php?page=corporateRatingsMOL&issueId=58839
Page 4 of 4
E. INTEREST RATE FORECAST FOR ONE YEAR (12 Months) (INTEREST RATE
RISK, REINVESTMENT RISK)
The AA- rated bond that was issued by IBM is riskier when compared to a 10 year U.S.
government treasury bond. When compared to its competitors such as Microsoft or Dell, it is a
much safer bond. After reading some article from WSJ or watching market news such as CNN,
we believe that interest may increase because of the budget deficit. Interest rate increase when
demand for loanable funds increase. The demand for loanable funds is affected by the capital and
operating need of the U.S. government, Federal agencies, state and local government. Federal
and state budget deficit increases the demand for loanable funds, which in turn will increase
interest rate.
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F. SUMMARY
I think after reviewing the data for this bond, my recommendation is to invest in it. As I have
stated before it slightly riskier, but its safer when compared to its competitors. IBM has a great
reputation for paying back its debt, it has never defaulted. Also it is a large company that does
business all around the world, being a technology company, it is always evolving and improving.
It has maintained a good investment grade bond for many years, and shows no signs of being
downgraded.
Addendum
Ahmed completed Part A-C. Eissa completed D-F. We did the Excel part together.
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