Alternative Strategies for IBM

ALTERNATIVE FINANCIAL STRATEGIES FOR IBM 5

AlternativeStrategies for IBM

1.IBM is among thetopproducersof computerhardwareandsoftware togetherwith undertakingnumerousrelatedconsulting activities.Itis anentitythat has beeninoperationforalongperiodwhereits managementhas beencriticalin ensuringthatitcompetesandexcelsin a dynamicandcompetitivebusinessenvironment.Themanagementhas alwaysbeentryingto figureout newandalternative mechanismsthat can be utilizedto bringin muchneededfinancesto runvariousactivities.

Thecompanyis continuously undertakingresearchanddevelopmentactivitiesthat areaimedat enhancingits presencein theglobal marketwherecompetitorsare usingvarioustechniquesto ensurethattheydominate.There are variousalternative strategiesthatIBM can useto ensurethatthere are sufficientfundsthatwill enableitto competein themarket.Thesestrategiesincludeissuingof sharesto thestockmarket,borrowingfrom financialinstitutions,andinvestingin securitiesasshares,which will endup earningdividends.

Theprospectof issuingsharesimpliesthatthecompanyshall havean increasedamountof moneythat can be usedto acquirefactorsof productionat discountedratesto enablethemanagementto produceat lowcoststhushelpingto lowerthepriceschargedon thefinishedproducts.Such a measureshall be instrumentalin allowingtheproductsto competefavorablywith others in themarket.Thedisadvantageof issuingsharesby themanagementof IBM is thatitmay takelongerthan anticipatedgettingtheprospectivebuyersof thesellersthusdenyingthem a chanceto accelerateinvestmentprospects.

Thesecondstrategyisconcernedwith borrowingfrom financialinstitutionswherethere shall be a largepoolof financesfrom, which themanagementshall useto acquirerawmaterials,equipments, andhiringof suitablestaff.Theseshall goa longwayto allowthefirm to producecheaphigh-qualityproductsthat will becomecompetitivein themarket.thedisadvantageof borrowingis thatitputsthefinancialissuesof thefirmat riskbecauseitis subjectedto manydebtsthat may endup interferingwith its futurecreditratingsin caseof anysubstantialdefaults.

Thethirdstrategyshall entailtheideaof participatingin thesecuritiesmarketwherethemanagementshall haveto dwellon theprospectof buyingsharesof othercompaniesandeventuallysellthem at a premium.Suchan initiativeis an investmentmeasureon its ownsince itshall helpthecompanyto getadditionalfundsdepending on theperformanceof theacquiredsharesin thestockmarket.Thefundsobtainedfrom thesaleof acquiredsharescan be investedinthebusinessto helpin furthergrowthof its activities.Thedisadvantageof thisinitiativeis thatthesecuritymarketsare fullof uncertainties,which may leadto hugefinanciallosses.2.Pro-FormaFinancial Statements

Theseare statementsthatfinancialmanagersof IBM are goingto useforforecasting activitieswheretheyare goingto concentrateon devising methodsof estimatingtheexpectedfinancialfiguresto enablethem to plantheactivitiesof thefirm adequately.In thiscontext,there are three distinctfinancialstatementsthat are goingto betackled.Theyhaveshall bepresentedon an excelsheetattachedto thispaperto enableproperanalysisof thedata providedin thefinancialstatementsof IBM coveringtheperiodbetween 2011 and2014.NetPresent Value Analysis of proposedStrategy

IBMhas three distinctstrategiesas outlinedin thefirstpartof thispaper.Theseincludesaleof sharesin thestockexchangemarket,purchaseof securitiesfrom thesecuritiesmarket,andborrowingfundsfrom theavailablefinancialinstitutions.All thesestrategiesaimat increasingthefutureprospectsof thefirm in thesensethattheywill avail thenecessaryfundsto beusedin expandingtheactivities,which shall in turnleadto marketcompetitiveness. Theideaof buyingsecuritiesin thestockexchangeandothersecuritymarketsis thebestoptionforIBM in thiscontextsince itshall havebetterprospectsof accessingincreasingfinancesin a shortwhile thushelpingto boostits activities.

IBMmay considertwo-investmentprojectsthat will increaseits competitiveness at themarket.Thefirstone is investingin capacitybuildingwhereitacquiresrawmaterialsrequiredto producemoreproductsnowwhilethesecondis investinginsecuritiesfortwo yearsthenusethemoneyobtainedto expandits activitiesaccordingly.

ProjectA is for direct investment in capacity building while B is investingin stock market for the first two years at a rate of 10%.

Project

Initial Investment

Cash flows (Yr 1)

Cash flows (Yr 2)

A

50,000

25,000

25,000

B

50,000

35,000

15,000

NPV(Project A) = $50,000+ $25,000(1.1)+25,000/(1.1)^2=-6,611.57

NPV(Project B) =$50,000+$35,000(1.1) +25,000/(1.1)^2= 2,479.34

Fromthe results obtained using NPV it is evident that the idea ofinvesting in the securities market shall make much financial sensethan investing in capacity building. The firm shall have enoughresources at the end of two years, which shall be instrumental infacilitating further investments that shall lead to marketcompetition. These two years shall give the company enough time toconcentrate on research and development related activities, whichshall prepare it to make informed investment decisions.