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IBM endeavors to prepare a common size financial statement with the common size being on the total of each side of the accounting equation. On the income statement, each item is expressed as a percentage of net sales. This helps evaluate internal make up of financial statements (Forbes, 2011). The purpose of this type of accounting is to evaluate financial statement accounts across companies.
Over the years, IBM has witnessed an increase in its major revenue, indicating an increment in comparison to Dell. This could be attributed to the fact that IBM focuses mostly on major companies. Additionally, the company invests in IBM’s five major business services, namely: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing.
Global Technology services are the main income generators, most notably in 2010, and attracted a total of 39% of the company’s total revenue (Forbes, 2011). Software on the other hand accounts for the pre-tax income.
The most notable IBM’s software products are Tivoli, Lotus and Rational. Its research and development team has continually endeavored to provide the company with the best information as regards the markets of its products (Forbes, 2011).
This is arguably true as IBM’s mainframes have over the years been in the market and still present a profitable products line for the business, in addition to other personal computers and servers. In the information technology firms, IBM is still ranked high and is listed in Fortune magazine as among the world’s most admired companies.
One of its most identifying characteristic has been the zeal to invest in low-margin business; for instance the personal computer division that was later sold to Lenovo group and later focusing on more high-value products and services. Its most valuable expense in 2010 was the purchase of Netezza at $1.7 billion (Forbes, 2011).
Dell has not been doing badly either, although its revenue is far behind IBM’s. Its philosophy of actively managing demand in real time and selling what is has in its stores has ensured that the company soar to greater heights. If it relied on what it wants to sell, the company would have witnessed low profit margins than recorded (Dell, 2011).
Its success is further promoted by the fact that Dell’s customers are mostly the high-end buyers who adopt new technology, often making the market adopt new product life-cycle transitions (Dell, 2011).
Its profit margins have risen steadily and more funds have been directed into research and development for the innovation of more features. Additionally, its operating expenses have been on the rise perhaps an attribute of the global crisis that initially affected the market of all products.
The company’s manufacturing system has concentrated on the building products place orders, working closely with its major suppliers while concentrating more on consumer research to realize a flexible system. Most if its funds have thus been directed into research and development. The earnings from the shares cannot really account for much of the company’s income.
Thus it is agreed that the forecast accuracy in Dell could be around 70-75%, attributable to its careful accounts selection (Dell, 2011). The company’s management has over the years focused on the high-end products with a more prolonged shelf-life.
This, however, is mostly applied when the consumer market is highly unpredictable. Of the two companies, IBM is more successful and somewhat unpredictable in its development of new technologies.
References
Dell (2011). Financial reports. Web.
Forbes (2011). International Business Machines, Income Statement (NYSE:IBM). Web.
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