Ibm vs Accenture Essay

5103 Words Sep 18th, 2012 21 Pages
Executive Summary

IBM and Accenture are both huge companies and uses five factor DuPont analysis to achieve a return on equity. IBM has a higher return on equity than Accenture, and therefore the management are more efficient in generating shareholder value per dollar invested. However both the companies are performing better than the industry average. IBM does also take lesser number of days to convert cash on hand compared to Accenture and industry average. But, Accenture is taking more days than industry average on converting into cash. For the company’s credit rating we only consider the quantitative factors as it is difficult to get the in depth information on the qualitative factors. We consider the average of three years to get
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This rise and fall for both the companies is due to the effect of five components in determining the ROE.

Tax Burden

This measures the effect of taxes on ROE. From the last past five years, there has been a rise in the tax burden for both IBM and Accenture, accounting to 71.9% in 2007 to 75.5% in 2011 and 47.5% in 2007 to 64.9% in 2011 respectively. However, Accenture is performing below the industry’s average of 68.7% in 2007 to 75.95% in 2011and IBM is more or less closer to the industry average. The increase in the tax burden in both the companies indicates that taxes declined as a percentage of pre-tax profits. This inclined in IBM is because net income margin improved 0.8 points to 14.9% in 2010 versus 2009 and 14.8% improvement in 2011 versus 2010 and due to increase in operating pre-tax income and margin of 1 points in 2010 versus 2009 and 0.3 points in 2011 versus 2010 and also the effective tax rate in 2011 was 24.5% which has been dropped from 24.8% in 2010 and again dropped from 26% in 2009. Also, the inclined tax burden in Accenture is also due to its effective tax rate of 27.3 % in 2011 that has been dropped from 29.3% in 2010.

Interest Burden

Interest burden for IBM in 2011 has been the minimum so far compared to the previous four years and for Accenture has inclined in 2011 from 2010. And both the companies are close to the industry’s average. Both IBM and Accenture have more than 100

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