Company valuation debasis chakraborty emba 2014 403503


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Company valuation debasis chakraborty emba 2014 403503

  1. 1. 1.IntroductionThis paper is based on deep research on market as well as through analysis of the successbehind 100 years blue chip Company. Being an IBMer, I have highlighted various insight factorsbehind IBMs market value. Warren Buffett has recently purchased IBM share values of morethan $10.6 Billion.IBM has maintained its global band value for last 100 years through its deeperinnovation, repudiation, leadership in technology and services, patents and customersatisfaction. Exhibit 4 and 5 provides the band value of IBM. Exhibit 6 provides the IBM’s currentvalues, assets and employees strength.2.Management SummaryIBM is one of the Top Technology firm at wall street.IBM has very strategic and maturedorganization structure with diverse set of talent pool. It has five major wings such as SWG, GBS,Research Lab, GTS, and Financial Management. SWG is purely focus on software and licensing,GBS is on services and delivery, GTS is on IT infrastructure and Financial Management is onFinancial and Securities. IBM has branches worldwide and employees are more than fourhundred thousand. During the dotcom bubble the company share started with close $50 and last5 years it has been recovered well and share value close to $200.3.Valuation StrategyThere are six important methodology that comes part of company valuation are balanced sheet,income statement, cash flow discounting, mixture of goodwill and repudiation, value creation andstock options. The seller strategy should be the min price she/he should be prepares to sell forand for buyer, it should be the max price he/she is willing to bid for. The important part of anybusiness is measure in terms of its earning, in other words its free cash flow.4.AnalysisTo analysis the above in details, we really need to go though the following points such asPresent Value (PV), Net Present Value (NPV), Weighted Average Cost of Capital (WACC),Capital budgeting, discount factors, free cash flow, present of horizon value. The future value iscalculated using the following equation such as Future Value = Present Value (1 + Rate ofInterest) number of year(n) and Cash flow = benefit – Costs Discount Factor = 1/ (1+r) twhere r=discount rate; t= year5.Valuation ApproachesIBM valuation approached will be based on the above methods we maintained earlier such asbalanced sheet, income statement, Quality, economic profit, cash flow discounting, mixture ofgoodwill and repudiation, value creation and stock options.Debasis Chakraborty International Business School Company Valuation
  2. 2. IBM Ratios & ReturnsPrice-to-sales 2.10Return on Equity 75.50Operating Margin 23.50Profit Margin 15.50%IBM FinancialsSales $104.689 bilProfits $16.261 bilAssets $115.778 bilEmployees 433362.0Price $ 194.45 Change1.57Open $194.15 % Change0.8%Previous Close $192.88 Volume3,880,667Market Value 220 bil P/E Ratio14.0Bid $ 194.70 EPS13.90Ask $194.94 Dividend3.40High $195.00 Yield1.7Low $192.90 Shares Out1.13 bil52wk High $211.79 52wk Low177.35Industry: DiversifiedComputer SystemsCurrent Valuation Ratios - International Business MachinesInternationalBusinessMachines Corp.TechnologySelected Financial DataCurrent share price (P) $ 194.45No. shares of common stockoutstanding1,158,661,712Growth rate (g) 51.65%Earnings per share (EPS) $ 13.68Next year expected EPS $ 20.75Operating profit per share $ 18.46Sales per share $ 92.28Book value per share (BVPS) $ 17.38Ratios (Price Multiples)Price to earnings (P/E) 14.21 12.40Price to next year expected earnings 9.37 10.42Price-earnings-growth (PEG) 0.28 0.65Price to operating profit (P/OP) 10.53 9.67Price to sales (P/S) 2.11 1.99Price to book value (P/BV) 11.19 3.35Debasis Chakraborty International Business School Company Valuation
  3. 3. 5.1 Investment HighlightIBM has stable earning and continuous value Creation Organization and most prestigious brandin this decade. The exhibit 7 provides the investment consideration and the generating economicvalue for the shareholder is very high and very stable and healthily cash flow, operating profit,net profit for continuous last 5 years. IBM has an excellent combination of strong free cash flowgeneration and low financial leverage. The market expectation is firm’s free cash flow margin toaverage about 17.2% in coming years. IBM has aggressive plans to reach $20 in operatingearnings per share by 2015 via a combination of revenue expansion, operating leverage, andshare repurchases.5.2 QualityExhibit 8 will provide the business quality of the International Business Machine.5.3 Economic Profit AnalysisThe best way to measure of a firms ability to create value for shareholders is expressed bycomparing its return on invested capital (ROIC) with its weighted average cost of capital(WACC). The gap or difference between ROIC and WACC is called the firms economic profitspread. IBMs 3-year historical return on invested capital (without goodwill) is 55.9%, which isabove the estimate of its cost of capital of 9.2%.IBM’s value creation rating is EXCELLENT.Exhibit 9 & 10 has provided the organization’s value for ROIC and WACC.5.4 Cash Flow AnalysisExhibit 11 provides that IBM has strong and healthy cash flow continuous last three years.5.5 Valuation AnalysisThe discounted cash flow model indicates that IBMs each shares are worth between $166.00 -$250.00.The margin of safety around our fair value estimate is driven by the firms LOW ValueRisk rating, which is derived from the historical volatility of key valuation drivers.5.6 Future Path of Fair ValueReferring the exhibit 15, the expected fair value of $263 per share in Year 3 represents ourexisting fair value per share of $208 increased at an annual rate of the firms cost of equity lessits dividend yield.5.7 Cash Flow, Income Statement and Balance sheetExhibit 16 to 18 provided the Balance sheet analysis, Cash flow statement and incomestatement.6.ConclusionIn earlier section we have provided the enough information to present the IBM’s value and wehave discussed IBM’s cash flow analysis, valuation analysis, Quality, future path of fair value,investment highlight, economic profit analysis, cash flow statement , balance sheet, incomestatement. IBM is rated top valued and highly innovative organisation in wall streets and it hashigh employee and customer retention.Debasis Chakraborty International Business School Company Valuation
  4. 4. 7.Appendix:Ext 1 Quality Rating of Company Ext 2 Valuation StatisticsExt 3: IBM’s Intrinsic Value Vs. Share-Price statsExt 4: Most valuable Global BrandsDebasis Chakraborty International Business School Company Valuation
  5. 5. Ext 5 BrandZ Top 10 Most Valuable Brand 2012IBM Statistics : Market CabEmployee 433,362 (2012)Revenue US$ 106.91 billion (2012)Operating income US$ 20.28 billion (2012)Net income US$ 15.85 billion (2012)Total assets US$ 116.43 billion (2012)Total equity US$ 20.13 billion (2012)Ext 6 IBM Statistics : Market CabExt 8 IBM’s Relative Valuation and FinancialSummaryExt 7 Investment ConsiderationDebasis Chakraborty International Business School Company Valuation
  6. 6. Ext 9 Return Of Investment CapitalExt 10 Weighted Average Cost Of CapitalsExt 11 Cash Flow GenerationExt 12 Valuation Projection for next 5 YearDebasis Chakraborty International Business School Company Valuation
  7. 7. Ext 13 : Valuation BreakdownExt 14 Graph: Range of Potential OutcomesExt 15 Expected Fair Share values for Next 3 yearExt 16 Pre Form Income StatementDebasis Chakraborty International Business School Company Valuation
  8. 8. Ext 17 Pre Form Balance SheetExt 18 Pre Form Cash Flow StatementDebasis Chakraborty International Business School Company Valuation