Finally, IBM bought back about a quarter of its shares during the latter half of the 1990s—fewer shares outstanding meant more earnings per share—and benefited from an overfunded pension plan that boosted earnings. As you can see, a simple comparison of IBM’s earnings per share relative to its operating income and cash flow raised many red flags—enough that any investor looking at the company in the late 1990s could have been skeptical about the quality of the firm’s earnings growth.
