International Business Machines (IBM), the largest technology services company in the world, had surpassed the expectations of those analysts following the company and its industry every quarter since 2005. In April 2013, however, the company released a report, indicating earnings of $3.00 per share of outstanding stock, which was below the $3.05 amount expected by the analysts. The response of the stock market was swift, with IBM share prices dropping by almost 6 percent. Perhaps indicative of the economic climate at the time, the company also reported that computer system hardware sales and consulting services generated revenues below prior forecasts.
What are revenues and earnings? How do they relate to stock prices? What role do analysts and their expectations play? Would an investment in IBM be a wise move? Answering such questions begins with an understanding of the business environment, investment decisions, and financial statements—topics addressed in Part 1 of this textbook.
Financial Accounting and Its Economic Context
The Financial Statements