Financial Management – EMBA Fall 2008 Page | 3
Executive Summary: Research In Motion
By Frederic Vuong
RIM is a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobilecommunications market. Through the development of integrated hardware, software and services that support multiplewireless network standards, RIM provides platforms and solutions for seamless access to time-sensitive informationincluding email, phone, SMS messaging, Internet and intranet-based applications. RIM technology also enables a broadarray of third party developers and manufacturers to enhance their products and services with wireless connectivity todata.
STRATEGIC PROBLEM
The Company is engaged in an industry that is highly competitive and rapidly evolving, and has experienced, andexpects to continue to experience, intense competition from a number of companies.
TECHNICAL PROBLEM
Even if the company is very profitable, its future is becoming uncertain due to the increasing competition. To be morecompetitive, the company relies more and more on its Current assets to ensure a Short-Term survival.
FACTS AND ISSUES
1.
Increasing Average Collection Period
: It takes more and more time for RIM to be paid for its sold products andthus affects RIM’s capability to invest into more profitable assets.2.
Increasing COGS
: Raw material and the labor costs are increasing and affecting RIM’s gross profit margin. Bydoing some hedging, RIM’s capability to invest into more profitable assets is limited.3.
Increasing Retained Earnings
: RIM is more and more profitable but does not pay cash dividends to itsstockholders.4.
Reducing Owners’ Equity
: Company relies more and more on external funds.5.
Important proportion of Cash
: RIM has more than 21% of Cash that could be invested in more profitableassets.
ALTERNATIVE SOLUTIONS
Solution 1: Increase Payment period
The average collection period is decreasing and thus reducing RIM’s cash. By increasing the payment period, thiscould increase cash that could be used for more profitable investments.
Solution 2: Purchase Fiduciary and Other Short-Term Investments
RIM should invest its Cash into Short-Term investments like purchasing fiduciary that are more profitable.
Solution 3: Purchase Company’s Own Stocks
RIM should purchase its own stock in order to reduce the Equity and borrow money to banks instead of as they havelower interests’ rates.
RECOMMENDATIONS
In the current situation, I would recommend the third solution to be followed. If RIM purchases its own stocks. itwill reduce the Owners’ Equity and its associated high interests. By getting loans from banks, RIM will get better interests’rates and thus saving more cash to invest into more profitable assets.
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