RIM Financial Analysis Essay

Submitted By Kevin-Cosgrove
Words: 3414
Pages: 14

Research In Motion Financial Analysis
BAT4M
For Mr Kennedy
Due Monday, June 17th

Purpose

The purpose of this report is to inform the reader about the accounting policies and current financial position of the Canadian publicly traded company Research in Motion (TSX: Blackberry [BB]) so that they can conclude and make an informed decision whether to invest in the company in the long term. Some prior knowledge of accounting is required to full understand what is being discussed in this report.

Background

Research in motion (RIM) (publicly traded in the TSX under Blackberry[BB]) was founded in 1984 selling computer software. In 1999, they were the first company to start selling cellular telephones with keyboards on them that they called Blackberrys. At the moment, their main source of revenue comes from Blackberry cellphone and tablet sales (60%), but they also sell cellular services (35.4%), and software (2.4 %). Other services make up the last 2.3%. At the moment they have sales from all 7 continents around the world and are still growing. Today, RIM aims to "aspire the success of its millions of customers around the world by continuously pushing the boundaries of mobile experiences". Recently, the company has fallen in a bit of a money 'draught' posting a $646 million dollar loss in 2012 after a $1.2 billion dollar gain in 2011 with huge numbers of its customers switching over to iPhone and Androidi.

Accounting Policies

Some of the main accounting policies that the executives and accountants at Research in Motion adhere to include(see "Appendix I):

Basis of preparation and presentation:
All of the financial statements of the company have been prepared in adherence with the United States generally accepted accounting principals
The fiscal end date is either 52 or 53 weeks, ending on the last saturday of February, or the first Saturday of March.ii
Foreign Currency Translation
The US dollar is the functional currency of RIM. All foreign currency denominated assets and liabilities of the company are translated into US dollars.iii

Cash and Cash Equivalents Cash and cash equivalents consist off balances and liquid investments with maturities of less than three moths or less at the date of acquisition.iv

Use of estimates
RIM tries to be as fair as possible with their estimates and assumptions in adhering to the US GAAP.v

Net accounts receivable
The balance for Accounts receivable which reflects invoiced/accrued revenue is presented as an allowance for doubtful accounts. This estimate reflects probable losses in accounts receivable.
RIM evaluates the collectivity of its accounts receivable based on a combination of factors, including credit risk, trends in the economy, and economic circumstances. vi

Investments
RIM's cash equivalents and investments consist of money market and other debt securities, which are carried at fair market value.vii

Inventories
Raw materials are stated at the lower of cost and replacement cost. Overhead costs are stated at a first-in-first-out basis. viii

Net property, plant, and equipment
These are stated at cost less accumulated amortization. Amortization is provided using the following rates:
Buildings and leasehold improvements- Straight line over terms between 5 and 40 years
Blackberry, operations and other IT- Straight line over terms between 3 and 5 years
Manufacturing equipment- Straight line over terms between 3 and 5 years
Furniture and fixtures- Declining balance at 20% per annumix

Goodwill
Goodwill represents the acquisition price over the fair value of identifiable net assets acquired. It is allocated at the date of the business combination. It is not amortized, but tested for impairment annually, during the forth quarter, or more frequently if events or changes indicate the asset may be impaired. x

Intangible Assets
Intangible assets with definite…