Ratios
Liquidity Ratios
Liquidity ratios determine an organization’s ability to cover current and potential future financial liabilities. The purpose of the report is, among other things, to demonstrate the liquidity of Intel. An organization strives to have a financial balance sheet to meet liquidity requirements but not to exceed a certain liquidity threshold.
The current ratio is calculated by dividing current assets by current liabilities:
- 2012: 31,358m / 12,898m = 2,431
- 2013: 32,084m / 13,568m = 2.364
The quick ratio is calculated by dividing the amount of the company’s total liquid assets by the amount of net liabilities and reinsurance liabilities:
- 2012: (31,358m – 4,734m) / 12,898m = 2,064
- 2013: (32,084m – 4,172m) / 13,568m = 2,057
Leverage Ratios
The leverage ratio at Intel signals the company’s ability to meet its own obligations based on the amount of incoming capital in the form of debt. These indicators are also very important for the organization, as it can focus on its ability to repay its loan obligations as they come due (Fraser & Ormiston, 2016).
Leverage ratio of total debt to total capital:
- 2012: 31.216m / 51.203m = 0.609
- 2013: 32,006m / 58,256m = 0.549
The debt ratio is calculated as the ratio of total debt to total assets:
- 2012: 31,216m / 84,351m = 0.370
- 2013: 32,006m / 92,358m = 0.346
Profitability Ratios
First of all, any commercial organization, of which Intel is one, strives to make and increase profits. Profit contributes to a company’s development and growth and is likewise the key to its future and success (Fraser & Ormiston, 2016). Several basic indicators are essential to consider in the financial evaluation of a firm and are related to the profitability assessment.
Gross profit margin is computed as the ratio of gross profit to the sum of sales:
- 2011: 33.757m / 20.242m = 1.667
- 2012: 33,151m / 20,190m = 1,641
- 2013: 31,521m / 21,187m = 1.487
Net profit margin is computed as net profit after taxes divided by sales volume:
- 2011: 12,942m / 20,242m = 0.639
- 2012: 11,005m / 20,190m = 0,545
- 2013: 9,620m / 21,187m = 0.454
Report Findings
Strengths and Weaknesses of the Intel Corporation
There are a number of advantages of the company that can affect the financial confidence and sustainability of the company, all other things being equal in the market:
- Brand value: Intel is considered on par with AMD as one of the two major manufacturers of microprocessor platforms and the processors themselves. In addition, the rating and reputation of the brand are in first place in the industry and are highly rated by rating agencies. Accordingly, the high popularity of the brand contributes to the fanatical development and high volume of sales and contracts.
- A significant volume of customers – the number of individuals and legal entities who prefer cooperation and purchase Intel products is high. While maintaining a quality, innovative product range, and competitive prices, this factor likewise contributes to the financial success and development of the organization.
- Leadership in innovation and development – some Intel products were the first in their niche or demonstrated the latest technical approach to solving a problem. Intel’s chips and brand are leading among similar products, outperforming even its regular competitor, AMD. If it meets these metrics, the drop in financial performance related to the development and innovative tech processes in 2012-2013 will be leveled out, and there will be natural growth.
- The partnership with Microsoft is one of the essential factors in the company’s success. Microsoft is the leading player in operating systems and technological solutions, being almost monopolized in some countries and highly specialized markets. Cooperation with them, apart from marketing benefits, brings direct financial benefits to Intel as well.
However, every company has its weak sides, which can shake the stable financial position, and Intel is not an exception:
- Occasional overproduction: Intel sometimes far exceeds demand by product volume. Apparently, this is not conducive to higher product prices or lower production costs.
- Non-participation in the mobile industry – Because of the steady downward trend of the personal computer market and the growth of the mobile market, Intel may lose financial strength over time.
- Lack of Intel representation in the developing world – Intel’s services and product market size in developing countries are insufficient. Despite its strong performance in already developed countries, the company has the potential to avoid financial losses from a weak presence in the rest of the world.
Financial Health Analysis
In the process of a detailed financial analysis, it becomes apparent that the profitability of net and gross profit decreased over the three years shown in the report. This process denotes an increase in expenses concerning sales, which negatively affects Intel’s financial success: from 2011 to 2013, the ratios decreased from 1.667 to 1.487 and from 0.639 or 63.9% to 0.454 or 45.4%, respectively. Revenues likewise tend to be negative. Based on the company’s official information, there was a decline in sales in the personal computer market in the first half of 2013 (Metallo et al., 2018). Despite compensatory growth in the second part of the year, the company turned its attention to creating and providing cloud computing services to refocus and increase sales (Welc, 2022). Moreover, the decline in gross profit was triggered by high spending on launching new facilities for the innovative technical manufacturing process.
To counteract the economic problems and due to the impact of the current business environment, the company’s top management decided in 2013 to restructure, including partial closures and targeted staff reductions. Some of the financial losses in the period under review are likewise due to this reason (Hasanaj & Kuqi, 2019). Despite this, revenue in the fourth and final quarter exceeded the negative figures of the third quarter. It may signal a leveling off and stabilization of the company amid a general desire for growth and further development.
The leverage ratio is a measure of a company’s inherent risk. The total debt-to-equity ratio decreased from 0.609 in 2012 to 0.549 in 2013. The decrease in the ratio of total debt to total equity signals a greater company preference for creditors or investors. Adequate debt management contributed to the decrease in this ratio at Intel from 0.370 in 2012 to 0.346 in 2013, and a further downward trend can be seen.
In terms of the company’s business health, 2013 was a year of continued declines in financial performance, but it was a year to build for the future. Many technologies were introduced in parallel with creating new workflows and business units. For example, new lines of fourth-generation Intel Core processors with innovative architecture, the Intel Atom microarchitecture platform, and 22nm Intel Xeon processors were developed (Metallo et al., 2018). In addition to technological changes, the attitude to the investment strategy was changed in the direction of more concentration (Di Lorenzo & van de Vrande, 2019). Consequently, it was planned to increase the market penetration rate of these products, which is essential and corresponds to the growing market’s requirements and the company’s competitiveness.
The investment portfolio by the end of 2013 remained quite impressive. At the end of the period, its volume was more than 20 billion U.S. dollars, including cash and cash equivalents, trading assets, and short-term investments (Metallo et al., 2018). Dividend payments to shareholders exceeded $4 billion (Metallo et al., 2018). The standard share buyback program was unstoppable and resulted in more than two billion share repurchases (Metallo et al., 2018). By the very end of the financial year, it is planned to set the dividend amount of 22.5 cents per ordinary share for payment in the first quarter of 2014, which likewise testifies to the confident policy of the company’s board of directors.
Based on the correlation between the financial estimates made and the company’s innovation plans, it is possible to predict a slowdown or halt in the rate of decline in revenue and gross profit. The new technologies proposed by the company should trigger another economic takeoff due to the company’s ownership of a considerable percentage of the microprocessor market and the growing demand for innovation in the consumer environment (Fraser & Ormiston, 2016). New products with higher performance and lower power consumption will further bolster Intel’s presence in the market.
According to the financial statements, current liquidity ratios were 2.431 in 2012 and 2.364 in 2013. In contrast, quick liquidity ratios were calculated and determined to be 2.064 in 2012 and 2.057 in 2013. With an overall satisfactory one-to-two ratio, the current liquidity ratio may indicate idle assets, contributing to delayed development and potential inefficiencies or shortfalls in profits (Fraser & Ormiston, 2016). The quick ratio demonstrates the quality of the assets themselves, excluding inventories and other parts of future assets, as their value may vary.
Financial Health Report
Based on the financial analysis above, it is possible to determine the trend of the leading development and the need for action for the company. In 2014, the next reporting period after the audited period, sales are expected to increase significantly due to new products and increased market demands. In order to maintain the growth and maximize Intel’s revenue, it is recommended to reduce operating expenses and partially reduce the cost of products to the customer in order to support the maximum demand.
Despite the decrease in liquidity and margin ratios, the company’s total revenue tends to increase with each reporting period. Production and sales volumes are likewise increasing, as is the adequacy of debt management. The drop in total revenue in 2013 resulted from restructuring and innovation in developing new production facilities and refocusing specific strategies (Metallo et al., 2018). With this process completed by the fourth quarter of 2013, net income is projected to increase next year.
In an overall assessment, Intel demonstrates a fairly confident return of position in some indicators and growth in others. The 2014 fiscal period should be crucial in terms of determining the effectiveness of new production methods and selling next-generation technology. According to some employees’ opinions, a partial entry into the mobile market will be planned again. This process will guarantee a significant increase in financial indicators and the company’s potential in case of success.
References
Di Lorenzo, F., & van de Vrande, V. (2019). Tapping into the knowledge of incumbents: The role of corporate venture capital investments and inventor mobility. Strategic Entrepreneurship Journal, 13(1), 24–46. Web.
Fraser, L. M., & Ormiston, A. (2016). Understanding financial statements (11th ed.). Pearson.
Hasanaj, P., & Kuqi, B. (2019). Analysis of financial statements. Humanities and social science research, 2(2), 17. Web.
Metallo, C., Agrifoglio, R., Schiavone, F., & Mueller, J. (2018). Understanding business model in the Internet of Things industry. Technological Forecasting and Social Change, 136, 298–306. Web.
Welc, J. (2022). Financial statement analysis. In Evaluating Corporate Financial Performance (pp. 131–212). Springer International Publishing. Web.
