IBM recently reported its operations on this income statement:

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1. Is IBM a merchandising entity, a service business, or both? How can you tell?
2. Compute IBM's gross margin on sales (not total revenues) for 1992, 1991, and 1990. Compare this trend with the company's trend of total gross margin.

3. Write a brief memo to investors advising them of IBM's two-year trend of sales, total revenues, gross margin, operating income, and net income. In which year did IBM experience the larger change from the preceding year, 1992 or 1991?

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CONSOLIDATED STATEMENT OF EARNINGS INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (Dollars in millions) For the year ended December 31: 1992 1991 1990 Revenue: Sales Software $ 33,755 11,103 $ 37,093 $ 43,959 10,498 9,865 Maintenance. 7,635 7,414 7,198 Services 7,352 5,582 4,124 Rentals and financing. 4,678 4,179 3,785 64,523 64,766 68,931 Cost: Sales 19,698 18,571 19,401 Software 3,924 3,865 3,118 Maintenance Services Rentals and financing. 3,430 3,379 3,302 6,051 4,531 3,315 1,966 1,727 1,579 35,069 32,073 30,715 Gross Profit.. 29,454 32,693 38,216 Operating Expenses: Selling, general and administrative. 19,526 21,375 20,709 Research, development and engineering. 6,522 6,644 6,554 Restructuring charges... 11,645 3,735 37,693 31,754. 27,263 Operating Income. (8,239) 939 10,953 Other Income, principally interest. 573 602 495 Interest Expense... 1,360 1,423 1,324 Earnings before Income Taxes. (9,026) 118 10,124 Provision for Income Taxes. (2,161) 716 4,157 Net Earnings before Changes in Accounting Principles. (6,865) (598) 5,967 Effect of Changes in Accounting Principles... 1,900 (2,263) Net Earnings. $ (4,965) $ (2,861) $5,967