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IBM-Reformulation

IBM-Reformulation . Frank Huang. Brief introduction of IBM. incorporated in the State of New York on June 16, 1911 In the computer manufacturing and IT consulting industries

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IBM-Reformulation

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  1. IBM-Reformulation FrankHuang

  2. BriefintroductionofIBM • incorporated in the State of New York on June 16, 1911 • InthecomputermanufacturingandITconsultingindustries • Creates value through integrated solutions that leverage information technology and deep knowledge of business processes • IBM solutions reduces a client‘s operational costs or enablesnew capabilities that generate revenue

  3. Corporate recognition and brand • In 2012, Fortune ranked IBM the • No. 2 largest U.S. firm in terms of number of employees, • the No. 4 largest in terms ofmarket capitalization, • the No. 9 most profitableand • the No. 19 largest firm in terms of revenue. Globally, the company was ranked the No. 31 largest firm in terms of revenue by Forbes for 2011.

  4. Major operation components • The company's major operations consists of five business segments: • Global Technology Services and Global Business Services, which the company collectively calls Global Services, • Software, • Systems and Technology, • Global Financing

  5. ConsolidatedBalanceSheet

  6. ConsolidatedBalanceSheet (continued)

  7. ComputationofNEA

  8. Computation of NFL

  9. Calculation of CSE CSE=NEA+NFA

  10. Consolidated Statement of Earnings

  11. Consolidated Statement of Comprehensive Income

  12. EnterpriseProfitAfterTax

  13. FinancialExpensesAfterTax

  14. MarketMultipleValuation FrankHuang

  15. BasicSteps • 1.selectsummaryperformance • 2.selectcomparablecompanies • 3.computemarketvariables • 4.computetarget’svalue • 5.computetarget’sequityvaluepershare

  16. Step 1. selectsummaryperformance

  17. Estimating Value using a NEA Multiple • EPATMarketmultiple=1/2*(HPQmultiple+MSFTmultiple) • CANmultiplewasdiscardedinfearofdistortingequityvaluepershare. • Stockisovervalued,sell

  18. Estimating Value using a BV Multiple • BVMarketMultiple=averageofindustryBVmarketmultiple • Stockisovervalued,sell

  19. Data for Valuation using Income Statement Multiples

  20. Estimating Value using a EPAT Multiple Equity value lower than current stock price. Sell.

  21. Estimating Value using a EPAT from sales Multiple Stockisovervalued,sell

  22. Estimating Value using a NI Multiple Stockisundervalued. Buy

  23. Estimating Value using a CI Multiple Stockisovervalued,sell

  24. Estimating Value using a Price Minus Book Value to R&D Ratio Multiple Stockisundervalued. Buy

  25. Comments • If throw out ACN, IBM’s equity value increases to 194 and 151 using the BV multiple and EPAT multiple. • Overall speaking, IBM’s stock seems to be overvalued and is recommended to sell. • Inaccuracy could result from wrongful choice of comparable companies, or inconsistency of calculation.

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