Module 5 Assignment – Analyzing and Interpreting Income Disclosures

Question 1

Question text

Research and Development Expense
International Business Machines Corporation (IBM) reported the following on its 2018 form 10‑K.

$ millions	2018	2017	2016
Total revenue	$79,591	$79,139	$79,919
Research, development and engineering expense	5,379	5,590	5,726
Number of new patents awarded	9,100	9,043	8,088

Required

a. Calculate IBM’s common‑size research, development and engineering expense for each year. What pattern do we observe? Note: Round percentage to one decimal places (for example, enter 6.7% for 6.6555%).

RD&E Expense relative to sales has ……………………. over the years from 2016 to 2018.

b. Compute the research, development and engineering expense per new patent for each year. What pattern do we observe?

Note: Round percentage to one decimal places (for example, enter 6.7% for 6.6555%).

RD&E spending per patent …………………… over the years from 2016 to 2018.

Solution

a. Calculate IBM’s common‑size research, development and engineering expense for each year. What pattern do we observe?

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Question 2

Question text – Analyzing and Interpreting Income Disclosures

Sales information for Tesla Inc. follows.

Year Ended December 31 ($ thousands)	2018	2017	2016
Automotive sales	$17,631,522	$8,534,752	$5,589,007
Automotive leasing	883,461	1,106,548	761,759
Total automotive revenues	18,514,983	9,641,300	6,350,766
Services and other	1,391,041	1,001,185	467,972
Total automotive & services and other segment revenue	19,906,024	10,642,485	6,818,738
Energy generation and storage segment revenue	1,555,244	1,116,266	181,394
Total revenues	$21,461,268	$11,758,751	$7,000,132

Automotive sales revenue includes revenues related to sale of new Model S, Model X and Model 3 vehicles, including access to our Supercharger network, internet connectivity, Autopilot, full self-driving and over-the-air software updates.

Automotive leasing revenue includes the amortization of revenue for Model S and Model X vehicles under direct lease agreements as well as those sold with resale value guarantees accounted for as operating leases under lease accounting. We do not yet offer leasing for Model 3 vehicles.

Services and other revenue consists of non-warranty after-sales vehicle services, sales of used vehicles, sales of electric vehicle components and systems to other manufacturers, retail merchandise, and sales by our acquired subsidiaries to third party customers.

Energy generation and storage revenues consists of the sale of solar energy systems and energy storage systems to residential, small commercial, and large commercial and utility grade customers.

Compute the relative size of sales revenue from the four types of revenue Tesla discloses. (Hint: Scale each type of revenue by total revenue.)
Round answers to the nearest whole percentage.

Compute the growth in sales revenue for both years from each of the four types of revenue.