On Jan. 17, IBM (NYSE: IBM) released earnings for the fiscal year ended Dec. 31, 2007.

  • We already knew what the sales and earnings would look like after the preannouncement earlier this week. While that was a tasty starter, the details are really quite delicious.
  • Here's a scrumptious chain of events for you: Sales growth easily outpaced inflation, but net profits ballooned even faster. Combined with a generous share buyback program, earnings per share virtually exploded. Still, free cash flow nearly managed to match the EPS gains.
  • The world outside U.S. borders generated 65% of IBM's revenue, but 75% of its operational profits. There's greater-than-10% revenue growth happening in places like Poland, Pakistan, Portugal, and Paraguay.

(Figures in millions, except per-share data)

Income Statement Highlights

FY 2007

FY 2006

Change

Sales

$98,786

$91,424

8.1%

Net Profit

$10,418

$9,492

9.8%

EPS

$7.18

$6.11

17.5%

Diluted Shares

1,451

1,554

(6.6%)

Get back to basics with the income statement.

Margin Checkup

FY 2007

FY 2006

Change*

Gross Margin

42.2%

41.9%

0.4

Operating Margin

14.7%

14.6%

0.1

Net Margin

10.5%

10.3%

0.2

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

FY 2007

FY 2006

Change

Cash + ST Invest.

$16,146

$10,657

51.5%

Other short-term assets

$37,031

$34,003

8.9%

Liabilities

FY 2007

FY 2006

Change

Short-term liabilities

$32,076

$31,189

2.8%

Long-Term Debt

$19,539

$13,780

41.8%

The balance sheet reflects the company's health. IBM chose to report some of their balances in a non-standard, lumped-together format.

Cash Flow Highlights

FY 2007

FY 2006

Change

Cash From Ops.

$17,400

$15,307

13.7%

Capital Expenditures

$5,000

$4,700

6.4%

Free Cash Flow

$12,400

$10,607

16.9%

Owner Earnings

$11,918

$10,075

18.3%

Free cash flow is a Fool's best friend. Many of the cash flow figures come from the earnings call, where management handed out nice, round numbers. Owner earnings were calculated from reported financial items.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Microsoft (Nasdaq: MSFT)

$315,610

22.1

***

IBM

$143,790

15.4

***

Hewlett-Packard (NYSE: HPQ)

$112,990

16.4

****

Oracle (Nasdaq: ORCL)

$111,260

23.7

****

EMC (NYSE: EMC)

$36,130

24.3

*****

Using the latest reported numbers from Capital IQ. Keep your partners close and the competition in your vest pocket.

Related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Microsoft is a Motley Fool Inside Value recommendation. Why IBM isn't one at these prices is beyond this Fool's ken. Pick up a free 30-day trial pass, tune in to our premium bargain-hunting bonanza, and see if you can figure it out.

At the time of publication, Anders Bylund had no position in any company mentioned. The Fool's disclosure policy always adds up.