Book Economic Profit (from an operating standpoint) 1988 1989 1990 1991 1992 1993 1994 1995 1996
Return on Invested Capital 1.8% 0.6% 2.7% -0.1% 1.1% 0.6% 1.8% 3.1% 3.2%
Weighted Average Cost of Capital (WACC) 12.0% 11.3% 11.3% 10.8% 9.4% 12.2% 13.7% 8.9% 9.0%
Spread -10.24% -10.70% -8.60% -10.89% -8.33% -11.58% -11.86% -5.81% -5.76%
Invested Capital (Beg of Year) 107,158.0 123,462.0 119,459.0 132,166.0 132,664.0 122,631.0 107,225.0 101,949.0 99,211.0
NOPAAT 1,875.9 756.7 3,263.5 (138.2) 1,456.3 728.3 1,976.4 3,150.5 3,211.0
less Capital Charge 12,848.2 13,963.6 13,534.7 14,260.7 12,510.2 14,924.2 14,689.8 9,073.5 8,929.0
Book Economic Profit (before Goodwill) (10,972.4) (13,206.8) (10,271.2) (14,398.9) (11,053.9) (14,195.9) (12,713.4) (5,922.9) (5,718.0)
% Growth (20.36%) 22.23% (40.19%) 23.23% (28.42%) 10.44% 53.41% 3.46%
Divisor Base year
Standardized Book Economic Profit ($100.0) 100.0 (120.36) (93.6) (131.2) (100.7) (129.4) (115.9) (54.0) (52.1)
True Value Added (101,689.1)
Standardized True Value Added (770.1)
The previous post mistakenly overstated IBM's cost of capital which penalized more than it should have been (not by very much though). These are the correct figures. As for thier interpretation, IBM has actually been improving since Gerstner's reign. The key point is that it has been destroying value for significant time, under Gerstner's reign, it has been progressively destroying less value than before. Notice how the standardized true value line is actually increasing (gradually decreasing NEGATIVE numbers). Stating the obvious, when IBM invests so much money with a negative net return, value is destroyed. When the money is invested at a postive net return, value is created.
While this method is not perfect, it gets closer and closer to the "best I have seen" the more I work on it.
Thank you for you positive comments and compliments.
RCM
rcmfinancial.com |
