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Accounting Annual Report

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Cash Flow

In the world of business cash flow serves to be the nerve centre of business operations as it is the real picture of business financial position. For any company to survive the test of competition in the new global market, it must at all times aim to have a healthy cash flow that can remedy the unexpected economic shocks. International Business Machine (IBM) managers have to be acutely aware of these facts in order for the company to continue being a force in the market. In this respect, the report analyses three variable features of the cash flow that seem to determine the whole company prospect. These are operating cash flow, investing activities and financing activities cash flow (Ross et.al, 2007).

Operating activities cash flow is considered the core determinant of any business venture as it shows clearly the amount of cash the company is able to generate from its core business operations or activities. From the financial statements of IBM for the period ended 2010, it reported a solid cash flow from operating activities which totaled to a whopping $14,833,000,000. This value is quite massive compared to some other businesses in the same line, making IBM shareholders to be really lucky to have a fortunate company which is able to meet their interests in form of dividends. However, in comparison to the preceding financial year of 2009 where operating cash flow was to a tune of $ 20,773,000,000, there seems to be a downward trend to this component. One fact that stands out in this downward trend is that it is not due to dwindling incomes as the company was able to record an improvement in net income between the two periods. This means that other factors such as changes in liabilities and account receivables played critical role in reducing the company’s operating cash flow. In summary, from the operating cash flow results it becomes clear that the company is financially sound and does not need to rely on other forms of peripheral financing like borrowing, which still will be adding more costs to the company (Ross et.al, 2007).

The next component of cash flow is the cash flow from investing activities. In this section the report details the amount of cash IBM was able to spend on investments. The two typical investments commended under this section are the capital expenditures or monetary investments. Capital expenditure is critical for sustainability of the IBM since it must invest in new equipments and technologies in order to remain relevant in the business arena. The total value of cash flow from investing activities for the period ended 2010 was $ 8,507,000,000. A margin that is quite substantive and necessary to keep IBM competitive. Most importantly, from the value of operating cash flow the company was able to provide all the money required to finance investing activities in this section. Having known both the value of operating and investment activities cash flow, it becomes clear that IBM has a very positive free cash flow which basically is the net cash after deducting the operating cash from capital expenditures. IBM has a positive value free cash flow which essentially makes it possible for the company to enrich shareholders, besides plugging back some of the cash to other investment opportunities. Actually, the company is more viable for any serious investor who wants return for his or her money (Bodie et.al, 2004).

The last section of cash flow statement is the so called financing activities cash flow which majorly details all the transactions between the company owners and creditors. The components of this section can be understood easily by many people, even by those with little financial knowledge because they look explanatory. However, if not deeply analyzed, they can mislead even the brightest investors to make serious loses ever. For IBM this section looks really good and promising to any investor. From the preceding sections it becomes clear that the company operates on a positive value free cash flow, which by accounting procedures is the single most determinant of activities happening in the financing activities section. Because of a positive free cash flow, IBM has been able to extend dividend payment of $3,177,000,000 to its shareholders. As if this was not enough, the company resorted to making more benefits for the shareholders through purchasing back of the company shares at the stock market to a tune of $ 11,601,000,000. This represented a massive re-purchase whose effect led to increased control of the company ownership by the existing shareholders. When you look at the external funding which was though acquiring bank loans, one realizes that it was a meager amount and the company could easily cope without it. From all the sections of the cash flow of IBM Company, one strong point that comes clear is that it is profitable and it looks to have a good future. I recommend that investors should hurry and purchase stocks of this company; they will never regret that decision (Wild, 1992).   

Social Environmental Issue

IBM stands out as a company with real concern for the environment. This fact is proven by many international accolades and awards the company has won since its inception in areas of environmental conservation. If you want a company with very sound environmental protection policies and concern, right from the design of its products to the actual operationalization, then look no farther, come to IBM. The Company’s global environmental management system serves as the chief environmental cornerstone and ensures that the company develops the system of operations that not only achieves results for the company, but also serves to protect the environment where it operates (www.ibm.com).

From the accolades it has won internationally and locally, there is no doubt that IBM understands keenly the importance of conserving the environment in which it operates. Between the years 1967-1974 the company formalized three ambitious corporate policies to act as the framework to be followed while doing the business. The three policies centered on providing a healthy and safe working environment for all the company employees, environmental protection and conservation, conservation of energy and natural resources. The company realized very early, while still in its infancy, that the issue of environment conservation is the key to sustainable future for its operations, and clearly, such a robust thought has paid off. In order to tackle the issue of environmental protection more effectively, IBM developed micro-manageable policies to help to simplify the whole environment management (www.ibm.com).

One of the environmental policies aims to ensure that the Company at all times provides a safe and healthy environment that does not put to risk the lives of company workers. The company further makes it an obligation for itself to train all the workers on how to use the safety devices it provides for their own safety as well as for the company surroundings in cases of emergencies. The Company’s second environment policy is geared towards protecting the surrounding community. IBM makes it its responsibility to protect the environment of community members where it has presence. Through the expertise of its employees, the Company acts promptly and faster in areas or situations that are harmful to the community environment and aims to set things in order. From a few illustrations, there should be no doubt about IBM’s commitment to protecting the very environment in which it operates. The company considers its operations null and void unless they protect the environment which is their core foundation (www.ibm.com).       

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