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  • June 2015
  • Supplement
  • HBS Case Collection

Generating Higher Value at IBM (A): EPS Forecasting Model

By: Benjamin C. Esty and Scott Mayfield
  • Format:Electronic
  • | Language:English
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Abstract

This case analyzes IBM's financial performance and its capital allocation decisions over a 10-year period from 2004-2013, during which IBM returned more than $140B to shareholders through a combination of dividends and share repurchases. During this time, CEO Sam Palmisano created, announced, and then regularly updated a long-term financial "roadmap" as part of the firm's strategic transformation. The roadmap showed both a destination (a target EPS number) and a detailed path to that destination in terms of revenue growth, margin expansion, and share repurchases. After successfully achieving its first roadmap, the firm announced a second 5-year roadmap known as the "2015 EPS roadmap".
The case is set in May 2014, just after IBM's annual investor briefing. Despite more than 10 years of strong financial performance, IBM reported relatively weak financial results in the first quarter of 2014. Sophia Johnson, an equity analyst, must decide whether to revise her investment recommendation based on what she heard that day.

Keywords

Dividends; Share Repurchases; Earnings Guidance; Financial Statement Analysis; Financial Ratios; Payout Policy; Earnings Per Share (EPS); Earnings Management; Change Management; Leadership; Transformation; Financial Strategy

Citation

Esty, Benjamin C., and Scott Mayfield. "Generating Higher Value at IBM (A): EPS Forecasting Model." Harvard Business School Spreadsheet Supplement 215-711, June 2015.
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About The Authors

Benjamin C. Esty

Finance
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E. Scott Mayfield

Finance
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More from the Authors
  • Tempur Sealy International (A, B & C) By: Benjamin C. Esty and Daniel Fisher
  • MTN: Unlocking Value While Driving Socioeconomic Progress By: Benjamin C. Esty, Pippa Tubman Armerding and Dilyana Karadzhova Botha
  • A Better Way to Assess Managerial Performance By: Mihir Desai, Mark Egan and Scott Mayfield
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