You are on page 1of 4

Page 1 of 4

CORPORATE BOND ANALYSIS


Assignment No. 1 - Fall 2013
FIN 334 A - Investments

A. GENERAL BOND AND INVESTOR INFORMATION

1A- International Business Machines Corporation provides information technology
(IT) products and services worldwide. The companys Global Technology Services
segment provides IT infrastructure and business process services, including
outsourcing, process, integrated technology, and technology support. Its Global
Business Services segment offers consulting solutions for strategy and transformation,
application innovation, enterprise applications, and smarter analytics; and application
management, maintenance, and support services. The companys Software segment
offers middleware and operating systems software, such as Web Sphere software to
integrate and manage business processes; information management software for
database and enterprise content management, information integration, data
warehousing, performance management business analytics and intelligence, and data
analytics; Tivoli software for cloud and datacenter management, enterprise endpoint
and mobile device management, asset and facilities management, storage management,
and security systems; Lotus Software to connect people and processes for
communication; rational software to support software development in IT and
embedded systems; and operating systems software. Its Systems and Technology
segment provides computing power and storage solutions; and semiconductor
technology, products, and packaging solutions. The companys Global Financing
segment provides lease and loan financing to end users; commercial financing to
dealers and remarketers of IT products; and remanufacturing and remarketing services
for equipment. The company has a strategic alliance with Kutxa bank; and a strategic
partnership with SYNNEX Corporation. The company was formerly known as
Computing-Tabulating-Recording Co. and changed its name to International Business
Machines Corporation in 1924. The company was founded in 1910 and is
headquartered in Armonk, New York*

1B- The Bond was issued by International Business Machines Corporation on The
bond in question was issued by International Business Machines Corporation (IBM) on
August, 1st /1997. The maturity date is August/1/2027. The coupon rate is 6.220
%.The bond is non-callable, or convertible but is Putt able. The coupon rate is fixed.
The first payment date was February 1st /1998. It is a semi-annual bond and is paid out
in US Dollars. There is 469.0 million 1outstanding and has a par value of 1000. The
yield spread is 0.39 % and the treasury yield is 3.66%.**


1
*http://finance.yahoo.com/q/pr?s=IBM+Profil
**http://quicktake.morningstar.com/StockNet/Bondsquote.aspx?cid=0C00000BDL&bid=e5be1e
3b3a15591c74dabf2bfe0bea12&bname=Intl+Busn+Machs+6.22%25+%7c+Maturity%3a2027&t
icker=IBM&country=USA&clientid=dotcom


Page 2 of 4

2. A brief discussion of why you selected this bond to analyze, emphasizing how your
investment objectives and/or your business interests have resulted in this selection.
I chose this bond for the sake of doing this assignment, I am interested in IBM, but it was for this
assignment.
B. EVALUATION OF THE CORPORATE BONDS UNSYSTEMATIC RISK

1A. The Debt to Equity ratio for International Business Machines Corporation (IBM) is
currently at 84.18%, as of December 31, 2012. According to the balance sheet, total
assets were 119,213,000 whereas total liabilities were 100,353,000.1*

Total Liabilities:
Total Assets:






Current Ratio =


= 1.188
Quick Ratio =



=
0.9885
Financial Leverage

= 6.3209
Debt to Equity


= 1.2772

1B. Comparing International Business Machines Corporation (IBM) to their biggest
competitors Accenture plc (ACN) and Microsoft Corporation (MSFT).

#Accenture plc. (ACN)







#Microsoft Corporation (MSFT)



When compared International Business Machines Corporation (IBM) to, both
competitors Accenture plc. (ACN) and Microsoft Corporation (MSFT) have a much
higher debt to equity ratio.

2. The Times Interest Earned ratio for International Business Machines Corporation
(IBM) is currently 48.72%, as of December 31, 2012. According to the income
statement, total earnings before interest and taxes were 22,361,000 whereas total
interest expense was 459,000


#http://finance.yahoo.com

Page 3 of 4



3. Credit Position of the Company

a. The International Business Machines Corporation (IBM) bond I chose went down
from AA- in Sep. 2nd 2005 to A+ on Aug. 5th 2008*2
b. International Business Machines Corporation (IBM) has never defaulted.*
c. Fitch recently affirmed its ratings of IBM Corporation.*

Standard and Poors rates IBM Corporation at AA- / Moodys rates IBM Corporation
at Aa3.*



D. IS THE BOND RATING ACCURATE?

All of the information I found about IBM, show that the bond ratings would be accurate
according to the popularity of the company. Most of the rating has given to International
Business Machines Corporation (IBM) is not less than A rating. In additional,
International Business Machines Corporation (IBM) has seen huge growth over the time.
Also, the bond for IBM is so good but this one is fixed rate. Comparing to Microsoft
cooperation IBM has higher Debt to Equity ratio.



















2
*http://bv.mergent.com/view/scripts/MyMOL/index.php?page=corporateRatingsMOL&issueId=58839


Page 4 of 4

E. INTEREST RATE FORECAST FOR ONE YEAR (12 Months) (INTEREST RATE
RISK, REINVESTMENT RISK)

The AA- rated bond that was issued by IBM is riskier when compared to a 10 year U.S.
government treasury bond. When compared to its competitors such as Microsoft or Dell, it is a
much safer bond. After reading some article from WSJ or watching market news such as CNN,
we believe that interest may increase because of the budget deficit. Interest rate increase when
demand for loanable funds increase. The demand for loanable funds is affected by the capital and
operating need of the U.S. government, Federal agencies, state and local government. Federal
and state budget deficit increases the demand for loanable funds, which in turn will increase
interest rate.
3


F. SUMMARY

I think after reviewing the data for this bond, my recommendation is to invest in it. As I have
stated before it slightly riskier, but its safer when compared to its competitors. IBM has a great
reputation for paying back its debt, it has never defaulted. Also it is a large company that does
business all around the world, being a technology company, it is always evolving and improving.
It has maintained a good investment grade bond for many years, and shows no signs of being
downgraded.

Addendum
Ahmed completed Part A-C. Eissa completed D-F. We did the Excel part together.


3
investment analysis & portfolio Management, Reilly & Brown

You might also like