Performance Analysis of HP, IBM & DELL

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


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


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


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


HP 0.97 1.08 0.83

IBM 1.13 1.29 1.09

DELL 1.42 1.22 1.30


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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


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.


position out of these 3 firms and HP is weakest.

2. ACTIVITY RATIOS

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HP 14.86 14.28 11.41

IBM 21.98 20.84 21.46

DELL 38.51 41.52 57.84



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.


position out of the 3 firms considered and HP is the weakest.

II. Total Asset Turnover Ratio


HP 1.01 1.00 1.04

IBM 0.88 0.88 0.95

DELL 1.59 1.57 2.31


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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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position out of the 3 firms considered and IBM is the weakest.

III. Average Collection Period Ratio


HP 53.52 52.69 52.20

IBM 39.60 40.92 38.41

DELL 66.33 58.92 38.58



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


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


HP 77.95 88.23 81.98

IBM 75.56 74.6 63.09

DELL 117.54 135.88 86.40


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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


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.


position out of the 3 firms considered and DELL is the weakest position.

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3. DEBT RATIOS

I. Debt Ratio


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%


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


HP 27.53 16.98 22.43

IBM 52.46 45.25 25.40

DELL 17.25 13.58 34.30


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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.


position out of the 3 firms considered and Dell is the weakest.

4. PROFITABILITY RATIOS

I. Net Profit Margin Ratio

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HP 6.95% 6.69% 7.04%

IBM 14.85% 14.02% 11.90%

DELL 4.28% 2.71% 4.06%



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


HP 23.76% 23.59% 24.03%

IBM 46.07% 45.73% 44.06%

DELL 18.53% 17.51% 17.93%



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



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



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


HP 9.11% 8.85% 8.85%

IBM 19.33% 19.00% 16.49%

DELL 5.58% 4.11% 5.22%


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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


HP 21.66% 18.91% 21.39%

IBM 64.37% 59.32% 91.60%

DELL 22.34% 12.49% 22.15%



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 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 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 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


HP 7.04% 6.67% 7.35%

IBM 13.08% 12.32% 11.26%

DELL 6.83% 4.26% 9.35%


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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


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


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


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


$-

$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

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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


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


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


HP 10.31 15.60 10.26

IBM 13.31 12.23 9.40

DELL 9.89 19.67 8.06


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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


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


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


HP 2.23 2.95 2.19

IBM 8.57 7.26 8.61

DELL 3.35 4.99 4.65



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 $



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 $



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

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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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Documents

Performance Analysis of HP, IBM & DELL