HA1022 Principles of Financial Markets - Assignment



Abstract

Financial markets are essential for an economy to survive and grow. Well-structured financial markets are one of the ingredients that are a pre-requisite for a developed nation. It aids an economy in various ways. The report is written with an aim to describe the financial risks present in the International Business Machine Company and Hewlett-Packard Company, their current capital structure, current dividend policy and short-term financing policies that these both companies are undertaking. The analysis of the company's financial side is bundled with the theoretical background.

Introduction1

Discussion2

Business Overview2

International Business Machine Company (IBM)2

Hewlett-Packard (HP) Company3

Risks5

Definition & Meaning5

IBM's Risks6

Hewlett-Packard - Risks9

Short-Term Financial Policy12

Definition & Essential Concepts12

IBM's Short-Term Financial Policy14

IBM's Financial Position & Performance Data14

Analysis14

Hewlett-Packard Short-Term Financial Policy15

HP's Financial Position & Performance Data15

Analysis15

Capital Structure16

Definition & Explanation16

IBM's Capital Structure17

HP's Capital Structure17

Dividend Policy18

Definition & Essential Concepts18

HP's Dividend Policy19

IBM's Dividend Policy19

References20

Introduction

Financial markets are the one that provides the mechanism to the participants to fulfill their financial needs. Financial markets play a vital role in an economy. One of the important role financial markets plays is that because of their presence in an economic structure allow market participants to decide the price of the financial offerings made by various institutions and corporations.

The financial markets are broadly segregated further into two I.e. money markets and capital markets (Ross et. al, 2008). Money markets are the financial markets that deal with the financial securities that have a maturity of less than a year. For example, T-Bills, Certificate of Deposit, etc. However, capital markets are opposite to money markets i.e. it allows market participants to trade financial instruments that have a maturity longer than a year. Instruments such as shares, corporate bonds, etc. are traded in capital market.

Discussion

Business Overview

International Business Machine Company (IBM)

IBM, common name for International Business Machines Company, is an American headquartered organization. The company is operating in various countries across the globe. The company's headquarter is located in Armonk, New York, United States. The company celebrated their hundred years of success, recently in 2011 (IBM.com, n.d.).

IBM laid its pillar earlier in 1911. The name International Business Machines (IBM) was adopted by the company in the year 1924. IBM was nicknamed as Big Blue earlier by securities analysts because of its usage of blue color in various products, packaging and in its logo.

IBM is a pioneer in what we call smart computing (Annual Report, 2012). The whole paradigm of doing work is shifted with new valuable features embedded into it. IBM pursues continuous transformation not only in what they present you with but in making efforts that results in innovative products & solutions.

Recently in 2012, the company is awarded as a second largest firm in the United States with respect to their employment, awarded as the fourth largest in terms of market capitalization, ranked as number 9 according to its profitability and casted on nineteenth largest firm in terms of financial performance by the Fortune. Forbes has awarded IBM for being ranked on number 31 with respect to ...