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Buyback of stocks by IBM

Buyback of stocks by IBM

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Published by mannu.abhimanyu3098
IBM has a history of repurchasing its stocks under different circumstances.The recent buyback was a positive buyback as it was intended to return better value to the stockholders.This report was undertaken as a class assignment and we owe it to the vast information pool on the internet.
IBM has a history of repurchasing its stocks under different circumstances.The recent buyback was a positive buyback as it was intended to return better value to the stockholders.This report was undertaken as a class assignment and we owe it to the vast information pool on the internet.

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Published by: mannu.abhimanyu3098 on Feb 06, 2009
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03/14/2011

 
FINANCIAL MANAGEMENT I
TERM PROJECT
Course Instructor 
 Abhimanyu Singh01 Amal Mohan04 Astha Chaturvedi13Deeptodip Sen19Sudhanshu Kumar43
Submitted by
Dr. Kanwal Misra
 
1. Introduction:
 
This study aims to find the impact of repurchase of stocks by a company. We have chosen IBMas an example of it. In May, IBM repurchased $12.5 billion of its common stock from threebanks through accelerated share repurchase agreements which concluded at the end of February 2008.
1.A. Methodology:
 
We are following a structured way to analyse the impact of repurchase beginning with thereasons to repurchase. The steps followed have been listed below:1)
 
Selection of live example of a company which has done this exercise in the past.2)
 
Highlighting the need for repurchase by this company3)
 
Major reasons of repurchase4)
 
The financial condition of the company before the repurchase5)
 
The financial condition of the company after the repurchase6)
 
Market implications7)
 
Conclusion
1.B. Reasons for repurchase
1)
 
When a company feels that the exchange has discounted the price of its share by alarger than expected value, the company goes for a repurchase.2)
 
Improved financial ratios
namely ROA, ROE, EPS and P/E ratio. However it’s the by
product of the first motive.3)
 
To avoid dilution4)
 
They are subjected to lower capital gains tax rate.5)
 
To integrate all sister companies less than one umbrella
as is the reported case of iGATE.
 
After the initial study of the balance sheet of the IBM for the past three years it can beobserved that the companies Treasury stock has grown year by year.
Year 2008 2007 2006Treasury Stock (63,945,000) (46,296,000) (38,546,000)
According to Samuel J Parmesan, chairman, president and chief executive officer, IBM, "These
stock repurchases are enabled by IBM’s strong, consistent cash flow and are an important
way of returning value to IBM shareholders.The IBM repurchase seems to be driven by the reason number one listed above. The financialratios show an improving trend superficially. This is in line with the company policy ascommunicated by its chairman. The detailed analysis will be the part of this whole exercise.
2. Company profile-IBM at a Glance:
International Business Machines Corporation, abbreviated IBM and nicknamed "Big Blue" (forits official corporate colour), is amultinationalcomputertechnologyandconsulting corporationheadquartered inArmonk,New York, United States.The company is one of the fewinformation technologycompanies with a continuous history dating back to the 19thcentury. IBM manufactures and sells computerhardwareandsoftware,and offers infrastructure services,hosting services, andconsulting servicesin areas ranging from mainframe computerstonanotechnology.
 
The company which became IBM was founded in 1896 as the Tabulating Machine Company
 byHerman Hollerith,inBroome County, New York(Endicott, New York,where it still maintains very limited operations). It was incorporated asComputing Tabulating RecordingCorporation (CTR)onJune 16,1911,and was listed on theNew York Stock Exchangein 1916.
 

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