Challenges and Opportunities: A Qualitative Study on Tax Compliance in Pakistan
Company valuation debasis chakraborty emba 2014 403503
1. Debasis Chakraborty International Business School Company Valuation
1.Introduction
This paper is based on deep research on the market as well as through analysis of the success
of 100 years blue chip Company. Being an IBMer, I have highlighted various insight factors
behind IBM's market value. Warren Buffett has recently purchased IBM share values of more
than $10.6 Billion.IBM has maintained its global band value for last 100 years through its deeper
innovation, repudiation, leadership in technology and services, patents and customer
satisfaction. Exhibit 4 and 5 provides the band value of IBM. Exhibit 6 provides the IBM’s current
values, assets and employees strength.
2.Management Summary
IBM is one of the Top Technology firms at wall street.IBM has very strategic and matured
organisation structure with a diverse set of the talent pool. It has five major wings such as SWG,
GBS, Research Lab, GTS, and Financial Management. SWG is purely focused on software and
licensing, GBS is on services and delivery, GTS is on IT infrastructure and Financial
Management is on Financial and Securities. IBM has branches worldwide, and employees are
more than four hundred thousand. During the dot-com bubble, the company share started with
close $50 and last five years it has been recovered well and share value close to $200.
3.Valuation Strategy
There is six critical methodology that comes part of company valuation is a balance sheet,
income statement, cash flow discounting, a mixture of goodwill and repudiation, value creation
and stock options. The seller strategy should be the min price she/he should be prepared to sell
for and for the buyer, it should be the max amount he/she is willing to bid for. The essential part
of any business measured concerning its earning, in other words, its free cash flow.
4.Analysis
To analysis the above in details, we need to go through the following points such as Present
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 is
calculated using the following equation such as Future Value = Present Value (1 + Rate of
Interest) number of year
(n) and Cash flow = benefit – Costs Discount Factor = 1/ (1+r) t
where r=
discount rate; t= year
5.Valuation Approaches
IBM price approached will be based on the above methods we maintained earlier such as
balance sheet, income statement, Quality, economic profit, cash flow discounting, a mixture
of goodwill and repudiation, value creation and stock options.
2. Debasis Chakraborty International Business School Company Valuation
IBM Ratios & Returns
Price-to-sales 2.10
Return on Equity 75.50
Operating Margin 23.50
Profit Margin 15.50%
IBM Financials
Sales $104.689 bil
Profits $16.261 bil
Assets $115.778 bil
Employees 433362.0
Price $ 194.45 Change1.57
Open $194.15 % Change0.8%
Previous Close $192.88 Volume3,880,667
Market Value 220 Bn P/E Ratio14.0
Bid $ 194.70 EPS13.90
Ask $194.94 Dividend3.40
High $195.00 Yield1.7
Low $192.90 Shares Out1.13 Bn
52wk High $211.79 52wk Low177.35
Industry: Diversified
Computer Systems
Current Valuation Ratios - International Business Machines
International
Business
Machines Corp.
Technology
Selected Financial Data
Current share price (P) $ 194.45
No. shares of common stock
outstanding
1,158,661,712
Growth rate (g) 51.65%
Earnings per share (EPS) $ 13.68
Next year expected EPS $ 20.75
Operating profit per share $ 18.46
Sales per share $ 92.28
Book value per share (BVPS) $ 17.38
Ratios (Price Multiples)
Price to earnings (P/E) 14.21 12.40
Price to next year expected earnings 9.37 10.42
Price-earnings-growth (PEG) 0.28 0.65
Price to operating profit (P/OP) 10.53 9.67
Price to sales (P/S) 2.11 1.99
Price to book value (P/BV) 11.19 3.35
3. Debasis Chakraborty International Business School Company Valuation
5.1 Investment Highlight
IBM has stable earning and continuous value Creation Organization and most prestigious brand
in this decade. The exhibit 7 provides the investment consideration, and the generating
economic value for the shareholder is very high and very stable and healthily cash flow,
operating profit, net profit for consecutive last five years. IBM has an excellent combination of
high free cash flow generation and low financial leverage. The market expectation is firm’s free
cash flow margin to average about 17.2% in coming years. IBM has aggressive plans to reach
$20 in operating earnings per share by 2015 via a combination of revenue expansion, operating
leverage, and share repurchases.
5.2 Quality
Exhibit 8 will provide the business quality of the International Business Machine.
5.3 Economic Profit Analysis
The best way to measure a firm's ability to create value for shareholders expressed by
comparing 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 firm's economic profit
spread. IBM's 3-year historical return on invested capital (without goodwill) is 55.9%, which is
above the estimate of its cost of capital of 9.2%.IBM’s value creation rating is EXCELLENT.
Exhibit 9 & 10 has provided the organisation's value for ROIC and WACC.
5.4 Cash Flow Analysis
Exhibit 11 stipulates that IBM has robust and healthy cash flow consecutive last three years.
5.5 Valuation Analysis
The discounted cash flow model indicates that IBM's each share is worth between $166.00 -
$250.00.The margin of safety around our fair value estimate driven by the firm's low-value risk
rating, which derived from the historical volatility of the primary valuation drivers.
5.6 Future Path of Fair Value
Referring the exhibit 15, the expected fair value of $263 per share in Year 3 represents our
existing fair value per share of $208 increased at an annual rate of the firm's cost of equity less
its dividend yield.
5.7 Cash Flow, Income Statement and Balance sheet
Exhibit 16 to 18 provided the Balance sheet analysis, Cash flow statement and income
statement.
6.Conclusion
In an earlier section, we have provided them with enough information to present the IBM's value,
and we have discussed IBM's cash flow analysis, valuation analysis, Quality, the future path of
fair value, investment highlight, economic profit analysis, cash flow statement, balance sheet,
income statement. IBM is rated top valued and highly innovative organisation in wall streets, and
it has high employee and customer retention.
