Introduction
Financial analysis assesses the effectiveness and appropriateness of firms, initiatives, expenditures, and other finance-related operations. Among the most frequent methods for analyzing financial transactions is to create proportions from the information in the accounting records and contrast them to those of other organizations or the corporation’s recent achievements (Schroeder et al., 2022).
This paper aims to perform a fundamental analysis of Intel Corporation, which uses ratios derived from its accounting information, including profitability, liquidity, and leverage ratios, to evaluate the company’s worth.
Furthermore, the report evaluates Intel’s strengths and vulnerabilities by analyzing the examined income reports and metrics. Finally, the paper analyzes Intel’s financial health utilizing the annual report and compiling a monetary wellness analysis for Intel’s administration.
Calculation of Ratios
Liquidity Ratios
Liquidity ratios are an essential category of financial measures utilized to evaluate a debtor’s capacity to pay off outstanding debt commitments without obtaining additional money. By measuring indicators such as current and quick proportions, liquidity ratios determine a firm’s capacity to fulfill debt commitments and its safety margin (Fridson & Alvarez, 2022).
The current ratio is calculated by dividing Intel’s current assets by its current liabilities for the mentioned periods. In 2013, Intel’s current ratio was $32,084 / $13,568 = 2.36, whereas in 2012, it was $31,358 / $12,898 = 2.43 (Intel® Corporation, 2013).
On the other hand, the quick ratio was calculated by dividing quick assets by current liabilities. Quick resources are computed by subtracting inventories from total current assets.
Therefore, in 2013, Intel’s quick ratio was $32,084 – $4,172 = $27,912, while in 2012, it was $31,358 – $4,734 = $26,624
For 2013, Intel’s quick ratio was $27,912 / $13,558 = 2.06, whereas in 2012, it was $26,624 / $12,898 = 2.06 (Intel® Corporation, 2013).
The table below illustrates how the current and quick ratios of Intel Corporation for 2012 and 2013 were calculated.
Table 1: Intel’s Liquidity Ratios.
Leverage Ratios
A leverage ratio is one of numerous financial metrics that evaluates a corporation’s capacity to satisfy its outstanding debts based on the proportion of its capital that consists of loans. They are significant because enterprises employ a combination of stock and debt to sustain their activities. The amount of borrowings a business accumulates is valuable for determining whether it can meet its obligations when they come due.
This report calculates Intel’s debt-to-equity (D/E) and debt ratios, as shown in this section. The D/E proportion is calculated by dividing total liabilities by overall shareholder’s equity. In 2013, the D/E ratio was $34,102 / $58,256 = 0.59, while in 2012, the D/E proportion was $33,148 / $51,203 = 0.65 (Intel ® Corporation, 2013).
The debt ratio for the company is obtained by dividing total debts by total assets. In 2013, Intel’s debt ratio was $13,446 / $92,358 = 0.15, whereas in 2012, the firm’s debt proportion was $13,448 / 84,351 = 0.16 (Intel® Corporation, 2013). Table 2 below summarizes the calculated leverage ratios of Intel Corporation.
Table 2: Intel’s Leverage Ratios.
Profitability Ratios
Profitability ratios are a class of accounting measures used to evaluate a company’s capacity to produce income over time about its turnover, operational expenses, balance sheet assets, or stockholders’ equity, using information from a single point in time. They can be contrasted to productivity proportions, which measure how effectively a business employs its internal resources to generate profit.
The profitability proportions calculated in this section are the gross profit and net profit margins. The gross profit is calculated by the following formula (Fridson & Alvarez, 2022):
(NetSales – COGS) / NetSales
In 2013, Intel’s gross profit margin was ($52,708 – $21,187) / $52,708 = 0.59, while in 2012, the gross profit percentage was ($53,341 – $20,190) / $53,341 = 0.62 (Intel® Corporation, 2013). In 2011, Intel recorded a gross profit margin of ($53,999 – $20,242) / $53,999 = 0.63.
On the other hand, the net profit margin is obtained by dividing net income by revenue. In 2013, Intel’s net profit metric was $9,620 / $52,708 = 0.1825, while in 2012, $11,005 / $53,341 = 0.2063.
In 2011, the corporation’s net margin was $12,942 / $53,999 = 0.2397 (Intel® Corporation, 2013). Table 3 below summarizes the calculated profitability ratios of Intel Corporation.
Table 3: Intel’s Profitability Ratios.
Strengths and Weaknesses of the Company
In analyzing the capabilities of Intel Corporation, the report assesses the metrics calculated above. Intel’s better liquidity ratios are a strength for the firm in meeting its financial commitments since a usual quick ratio is regarded as anything with a value greater than 1 (Schroeder et al., 2022). Due to this, Intel’s quick ratio of 2.06 in 2013 shows that the business had the right assets to liquidate and pay off its present creditors promptly.
Moreover, the company’s current ratio of 2.36 in 2013 is desirable as it determines whether Intel Company is an attractive investment. Intel’s present proportion indicates to its investors and economists that the company maximizes its assets on its balance sheet to meet its current debt obligations, making it a more attractive investment opportunity.
Finally, Intel’s additional capability can be seen from the analysis of its leverage ratios. Firstly, the company decreased its D/E proportion, from 0.65 in 2012 to 0.59 in 2013, indicating lower risk default levels. Due to the inherent riskiness of debt, financiers and investors favor enterprises with reduced D/E percentages.
Fraser, L. M. & Ormiston (2014) insinuate that a low ratio signifies a lesser chance of late payment for creditors and reduces the likelihood of insolvency for stockholders in the case of a financial crisis. Therefore, a corporation with a proportion higher than the sector standard may have trouble obtaining additional finance from a loan provider.
On the other hand, Intel’s weaknesses can be drawn from the analysis of its profitability ratios: gross profit and net profit margins. The company witnessed a reduction in its gross profit, from 62% in 2012 to 59% in 2013 (Intel® Corporation, 2013). The 59% margin is way too low compared to the technology industry, where Intel Corporation operates, with an average of 67.34% (Csimarket, 2022).
A low gross profit margin indicates Intel’s performance is below industry standards and may be lower than in recent periods. Essentially, the corporation is not producing increased sales prices proportional to its cost of goods sold (COGS), which are Intel’s production or acquisition expenses (Robinson, 2020). This fact is a concern, as the corporation needs a substantial gross profit to generate net and operating profits.
Consequently, Intel’s net profit margin has decreased over the years, thus acting as a vulnerability to the firm. The decline is as follows: 2011 (23.97%), 2012 (20.63%), and 2013 (18.25%) (Intel® Corporation, 2013). The 18.25% recorded in 2013 is below the technology industry’s average of 21.23% (Csimarket, 2022).
A reduced net profit percentage demonstrates an inefficient cost structure and unsuccessful pricing methods (Hasanaj & Kuqi, 2019). Therefore, Intel’s low ratio may be attributable to ineffective administration, high costs or expenditures, and ineffective pricing tactics.
Financial Health of the Firm
Based on Intel Corporation’s 2013 annual report, this section uses Intel’s solvency ratios, that is, equity and debt-to-asset proportions, to analyze the institution’s financial wellness. A solvency ratio is a crucial parameter potential corporate creditors use to evaluate a company’s capacity to satisfy its long-term loan commitments. As an indicator of an enterprise’s financial health, the discussed solvency ratios will evaluate if Intel’s cash flow is adequate to cover its long-term debts. Table 4 summarizes the equity and debt-to-assets ratios of Intel Company as computed from its 2013 annual report.
Table 4: Intel’s Solvency Ratios ((Intel® Corporation, 2013; Appendix 1).
Intel witnessed an increase in its equity ratio, from 0.61 in 2012 to 0.63 in 2013, indicating that it acquired more assets using equity financing. The equity ratio of 0.63 is deemed as high, suggesting that the organization has met its asset obligations with minimum debt. The benefit of equity funding is that Intel will not need to return a loan. Therefore, it would not be necessary for the firm to make monthly repayments, which is especially beneficial if it does not initially create a return.
On the other hand, the debt-to-assets metric compares the overall debt of a corporation to its total assets. It illustrates how much of an organization’s assets are financed by loans and, thus, its capacity to repay its debt with its available resources. The lower ratios of 0.15 in 2013 and 0.16 in 2012 are below 1, indicating that Intel is mainly financed by equity and easily meets its debts.
Financial Health Report to Management
The following conclusions were made for the administration based on assessing the firm’s financial ratios and health from the preceding sections. Firstly, Intel heavily relies on equity financing, which indicates that it does not depend on debt to fund its operations or acquire assets. However, this presents a financial health risk as Intel will have to cede business management in exchange for equity funding.
Secondly, Intel’s quick proportion of 2.06 in 2013 indicates that the company had suitable cash reserves to settle its current obligations. Furthermore, the corporation’s current ratio of 2.36 in 2013 is favorable because it implies that Intel Company is an appealing prospect, indicating its potential to receive debt financing.
Finally, Intel’s gross and net profit margins decreased between 2011 and 2013, making the company perform below the technology industry’s benchmark. This data shows that Intel’s management is inefficient, its expenses are excessive, its pricing strategies are inadequate, and its sales prices are not increasing proportionally to its COGS.
Conclusion
In conclusion, financial analysis evaluates the efficacy and suitability of businesses, endeavors, costs, and other finance-related procedures. Intel’s superior liquidity ratios are an asset for the company’s ability to meet its financial obligations since a standard quick ratio is considered any value greater than 1.
Gross and net profit margins imply Intel’s efficiency is below industry benchmarks and may be lower than in former periods, indicating the company’s weakness. The reduced solvency ratios suggest that Intel is funded mainly by stock and easily covers its obligations. Intel will have to relinquish company management in exchange for equity capital, threatening its financial stability.
References
Csimarket. (2022). Technology sector profitability by quarter, gross, operating and net margin from 4 Q 2022. Csimarket. Web.
Fraser, L. M. & Ormiston, A. (2014). Understanding financial statements (11th ed). Pearson Education.
Fridson, M. S., & Alvarez, F. (2022). Financial statement analysis: A practitioner’s guide. John Wiley & Sons.
Hasanaj, P., & Kuqi, B. (2019). Analysis of financial statements. Humanities and Social Science Research, 2(2), 1-11. Web.
Intel® Corporation. (2013). Intel Annual Report 2013. Web.
Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2022). Financial accounting theory and analysis: Text and cases. John Wiley & Sons.
Appendix 1
The following formulas are used in the calculation of the two solvency ratios used in the report. Equity ratio is computed by dividing total shareholder equity by total assets. In 2013, Intel’s equity ratio was $58,256 / $92,358 = 0.63, while in 2012, the company’s equity proportion was $51,203 / $84,351 = 0.61.
On the other hand, debt-to-asset ratio is calculated by dividing total debts by total assets. In 2013, Intel’s debt-to-asset ratio was $13,446 / $92,358 = 0.15, while in 2012, the proportion was $13,448 / $84,351 = 0.16.
