Question

The following Tables present the summary of the balance sheet and income statement items of IBM...

The following Tables present the summary of the balance sheet and income statement items of IBM Company. All values are in millions dollars.

A. Balance sheet

Items

2019

2018

Cash

8,313

11,604

Marketable securities

696

618

Account receivables

23,795

30,563

Inventory

1,619

1,682

Prepaid expenses

3,997

4,678

Net Fixed Assets

96,457

68,764

Investment in AB Co. stocks

17,309

5,473

Account payables

24,600

21,372

Wages and salaries payable

13,101

16,855

Bond payable (10 yrs.)

54,102

35,605

Notes payable (3 yrs.)

39,398

32,621

Total shareholders’ Equity Capital

20,985

16,929

B. Income statement

Items

2019

2018

Revenues

77,147

79,591

Cost of goods sold

40,659

42,655

Salaries & benefits

11,786

13,197

Rent & other expenses

4,412

5,000

Deprecation

8,780

6,674

Interest

1,344

723

Taxes (23%)

731

2,619

Net Income

9,435

8,723


Required?

A. Compute the Net-operating Asset turnover (NOAT) of IBM Company in 2019. Suppose that the industry

average NOAT is 2.5x. Evaluate the asset management performance of the company compared to the industry

(6 pts

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Homework Answers

Answer #1

Net-Operating Asset Turnover is basically an efficiency ratio. It identifies how well a company is using its operating assets to generate revenue.

NOAT Ratio = Revenue/Operating Assets

Revenue = Sales

Operating Asset = Assets that are essential to the day to day operations of a business

Calculation of Net- Operating Asser Turnover of IBM Company in 2019

Revenue = 77,147

Operating Assets = 1,30,184 (Refer table below)

Therefore

NOAT Ratio = 77,147/1,30,184 = 0.59 times

Asset Value
Cash 8,313
Account receivables 23,795
Inventory 1,619
Net Fixed Asset 96,457
Total 1,30,184

Evaluation: Since industry average NOAT is 2.5 times which is better than 0.59 times, which shows the poor management of asset by company.

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