Profitability Analysis

Difficulty level: Basic

Profitability ratios measure the company's ability to generate profitable sales from its resources (assets).


Ratios (Summary)

International Business Machines Corp., profitability ratios

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Return on Sales
Gross profit margin 50.01% 48.63% 48.13% 46.89% 46.07%
Operating profit margin 19.97% 19.65% 20.59% 20.01% 19.33%
Net profit margin 12.96% 16.52% 15.89% 14.83% 14.85%
Return on Investment
Return on equity (ROE) 101.30% 72.32% 88.04% 78.73% 64.36%
Return on assets (ROA) 10.23% 13.06% 13.93% 13.62% 13.07%

Source: Based on data from International Business Machines Corp. Annual Reports

Ratio Description The company
Gross profit margin Gross profit margin indicates the percentage of revenue available to cover operating and other expenditures. International Business Machines Corp.'s gross profit margin improved from 2012 to 2013 and from 2013 to 2014.
Operating profit margin A profitability ratio calculated as operating income divided by revenue. International Business Machines Corp.'s operating profit margin deteriorated from 2012 to 2013 but then slightly improved from 2013 to 2014.
Net profit margin An indicator of profitability, calculated as net income divided by revenue. International Business Machines Corp.'s net profit margin improved from 2012 to 2013 but then deteriorated significantly from 2013 to 2014.
ROE A profitability ratio calculated as net income divided by shareholders' equity. International Business Machines Corp.'s ROE deteriorated from 2012 to 2013 but then improved from 2013 to 2014 exceeding 2012 level.
ROA A profitability ratio calculated as net income divided by total assets. International Business Machines Corp.'s ROA deteriorated from 2012 to 2013 and from 2013 to 2014.

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Gross Profit Margin

International Business Machines Corp., gross profit margin calculation

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (USD $ in millions)
Gross profit 46,407  48,505  50,298  50,138  46,014 
Revenue 92,793  99,751  104,507  106,916  99,870 
Ratio
Gross profit margin1 50.01% 48.63% 48.13% 46.89% 46.07%
Benchmarks

Source: Based on data from International Business Machines Corp. Annual Reports

2014 Calculations

1 Gross profit margin = 100 × Gross profit ÷ Revenue
= 100 × 46,407 ÷ 92,793 = 50.01%

Ratio Description The company
Gross profit margin Gross profit margin indicates the percentage of revenue available to cover operating and other expenditures. International Business Machines Corp.'s gross profit margin improved from 2012 to 2013 and from 2013 to 2014.

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Operating Profit Margin

International Business Machines Corp., operating profit margin calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (USD $ in millions)
Operating income 18,532  19,599  21,517  21,394  19,305 
Revenue 92,793  99,751  104,507  106,916  99,870 
Ratio
Operating profit margin1 19.97% 19.65% 20.59% 20.01% 19.33%
Benchmarks
Operating Profit Margin, Industry
Technology 23.96% 23.53% 21.45% 24.19% 23.86%

Source: Based on data from International Business Machines Corp. Annual Reports

2014 Calculations

1 Operating profit margin = 100 × Operating income ÷ Revenue
= 100 × 18,532 ÷ 92,793 = 19.97%

Ratio Description The company
Operating profit margin A profitability ratio calculated as operating income divided by revenue. International Business Machines Corp.'s operating profit margin deteriorated from 2012 to 2013 but then slightly improved from 2013 to 2014.

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Net Profit Margin

International Business Machines Corp., net profit margin calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (USD $ in millions)
Net income attributable to IBM 12,022  16,483  16,604  15,855  14,833 
Revenue 92,793  99,751  104,507  106,916  99,870 
Ratio
Net profit margin1 12.96% 16.52% 15.89% 14.83% 14.85%
Benchmarks
Net Profit Margin, Industry
Technology 19.36% 18.95% 16.59% 18.85% 18.48%

Source: Based on data from International Business Machines Corp. Annual Reports

2014 Calculations

1 Net profit margin = 100 × Net income attributable to IBM ÷ Revenue
= 100 × 12,022 ÷ 92,793 = 12.96%

Ratio Description The company
Net profit margin An indicator of profitability, calculated as net income divided by revenue. International Business Machines Corp.'s net profit margin improved from 2012 to 2013 but then deteriorated significantly from 2013 to 2014.

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Return on Equity (ROE)

International Business Machines Corp., ROE calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (USD $ in millions)
Net income attributable to IBM 12,022  16,483  16,604  15,855  14,833 
Total IBM stockholders' equity 11,868  22,792  18,860  20,138  23,046 
Ratio
ROE1 101.30% 72.32% 88.04% 78.73% 64.36%
Benchmarks
ROE, Industry
Technology 22.69% 23.13% 21.80% 26.37% 25.65%

Source: Based on data from International Business Machines Corp. Annual Reports

2014 Calculations

1 ROE = 100 × Net income attributable to IBM ÷ Total IBM stockholders' equity
= 100 × 12,022 ÷ 11,868 = 101.30%

Ratio Description The company
ROE A profitability ratio calculated as net income divided by shareholders' equity. International Business Machines Corp.'s ROE deteriorated from 2012 to 2013 but then improved from 2013 to 2014 exceeding 2012 level.

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Return on Assets (ROA)

International Business Machines Corp., ROA calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (USD $ in millions)
Net income attributable to IBM 12,022  16,483  16,604  15,855  14,833 
Total assets 117,532  126,223  119,213  116,433  113,452 
Ratio
ROA1 10.23% 13.06% 13.93% 13.62% 13.07%
Benchmarks
ROA, Industry
Technology 11.73% 12.47% 11.62% 13.60% 13.29%

Source: Based on data from International Business Machines Corp. Annual Reports

2014 Calculations

1 ROA = 100 × Net income attributable to IBM ÷ Total assets
= 100 × 12,022 ÷ 117,532 = 10.23%

Ratio Description The company
ROA A profitability ratio calculated as net income divided by total assets. International Business Machines Corp.'s ROA deteriorated from 2012 to 2013 and from 2013 to 2014.

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