Financial Statement Analysis of Intel Corporation

Accounting and Finance: Financial Statement Analysis Project

Intel Corporation is situated in California and is regarded as one of the major innovators and trailblazers in the creation and advancement of technology. Intel was founded in the year 1968 and in the year 1970, the company finalized its initial public offer (IPO) and became a publicly traded company. It trades as INTC in the NASDAQ stock exchange. This project seeks to provide a comprehensive look at the annual report of Intel Corporation and compares it with the industry in which it operates. The paper will consist of an analysis of the company's financial statements and will be in relation to the business setting and the industry in which it operates.

SWOT Analysis

Strengths

One of the strong suits of Intel is the great focus and emphasis on continuous innovation, research and development (R&D). According to statistical figures, Intel was the highest spender in R&D which translates into a competitive edge over other corporations. Another strength of the company is its high market share. Intel Corporation dominates 80% of the market share in the industry. The company closest to it, Advanced Micro Devices, Inc. (AMD) only has 17% of the market share. Another forte of the company is that it has a strong brand name in the marketplace and amongst consumers. Not only has the company become a household name but it also has a great reputation and eminence in the industry. Intel Corporation's brand name is trademarked in diverse products goods for example computers, hard drives as well as mobile phones. Consequently, from a financial standpoint, the corporation is the premier supplier of transistors as well as microchips, which are used in computers as well as different types of electronic gadgets, many of which are consumer goods. These strong suits have steered the company to financial success (Thota and Munir, 2001; Samson and Daft, 2015; 2001)

2. Weaknesses

The prevalent and major weakness of Intel Corporation that has adversely impacted the company in a financial standpoint is its safety record. Since its inception until the year 1992, the corporation had one of the greatest safety records in the market. From that point on, however, Intel's safety record has deteriorated to 80%. Causal factors of this decline consist of glitches of company merchandises such as transistors and numerous injuries to personnel and hazardous events such as chemical spills. Another drawback from a financial perspective is the deterioration in the PC sales in the recent years and this particular trend is irreparable. In addition, Intel is at a loss financially due to underutilized capacity. Owing to declines in PC sales, the company has decreased its level of manufacturing and this in turn has brought about the wastage of plenty of capital resources (Thota and Munir, 2001; Samson and Daft, 2015; 2001).

3. Opportunities

Owing to the unutilized capacity mentioned above, this offers Intel the prospect of manufacturing goods for other corporations. Such a strategy, this would empower the corporation to disclose to its competitors and to other businesses in the industry that they have the capability to cultivate products that can aggressively contest in the mobile marketplace. In the preceding two years, Intel has revealed new product technologies in all its business processes. For example, the introduction of 3D transistors sets the business in a great situation to contest not only nationally but also all over the world (Thota and Munir, 2001; Samson and Daft, 2015; 2001)

4. Threats

One of the worrying aspects that the company faces encompasses its business model. First of all, it is imperative to take into consideration that there are companies that are solely in the business of manufacturing microchips while others are solely in the business of designing them. Therefore, this intense competition allows for consumers to pursue better and perhaps cheaper business agreements and prices. Despite dominating 80% of the market share and being the leader in the server industry, Intel Corporation faces intense threat from corporations presently constructing their own server systems, for example Google and Facebook. What is more, Intel is centered on the computing and tech sector that is continuously transforming and advancing. Thus, Intel faces immense threat from upcoming firms and is in fear of producing merchandises which are deemed obsolete (Thota and Munir, 2001; Samson and Daft, 2015; 2001)

Comparative Income Statements and Balance Sheets of Intel Corporation

Intel Corporation

Comparative Income Statement 27, December 2014, 2013

2014

2013

Increase or (Decrease)

Amount

Percent

Net Revenue

55,870

52,708

3,162

6.00

Cost of Sales

20,261

21,287

-1,026

-4.82

Gross Margin

35,609

31,521

4,088

12.97

Research and Development

11,537

10,611

8.73

Marketing, general and administrative

8,136

8,088

48

0.59

Restructuring and asset impairment changes

55

22.92

Amortization of acquisition-related intangibles

3

1.03

Operating expenses

20,262

19,230

1,032

5.37

Operating income

15,347

12,291

3,056

24.86

Gains (losses) on equity investments, net

-60

-12.74

Interest and other, net

43

-151

-128.48

Income before taxes

15,801

12,611

3,190

25.30

Provision for taxes

4,097

2,991

1,106

36.98

Net income

11,704

9,620

2,084

21.66

Basic earnings per share of common stock

2.39

1.94

0.45

23.20

Diluted earnings per share of common stock

2.31

1.89

0.42

22.22

Weighted average shares of common stock outstanding

Basic

4,901

4,970

-69

-1.39

Diluted

5,056

5,097

-41

-0.80

The increase in revenue of the company is due to its increase in sales in 2014 and this in turn has propelled the gross margin of the company to a 12% increase. In addition, this has increased due to a decrease in the cost of sales. R&D is one of the reasons why the company is successful and this is evident in the 8.73 increase in the year 2014. In general, the company's operating income increased due to the increase in the proceeds. Another outstanding and significant increase is the gains generated from equity investments. Overall, the net income of the company increased by 21%. The increase in the returns generated by the company in turn caused the earnings per share to increase as well.

Intel Corporation

Comparative Balance Sheet 27, December 2014, 2013

2014

2013

Increase or (Decrease)

Amount

Percent

Assets

Current Assets

Cash and cash equivalents

2,561

5,674

-3,113

-54.86

Short-term investments

2,430

5,972

-3,542

-59.31

Trading assets

9,063

8,441

7.37

Accounts receivable, net of allowance for doubtful accounts of $38

4,427

3,582

23.59

Inventories

4,273

4,172

2.42

Deferred tax assets

1,958

2,594

-636

-24.52

Other current assets

3,018

1,649

1,369

83.02

Total current assets

27,730

32,084

-4,354

-13.57

Property, plant and equipment, net

33,238

31,428

1,810

5.76

Marketable equity securities

7,097

6,221

14.08

Other long-term investments

2,023

1,473

37.34

Goodwill

10,861

10,513

3.31

Identified intangible assets, net

4,446

5,150

-704

-13.67

Other long-term assets

6,561

5,489

1,072

19.53

Total assets

91,956

92,358

-402

-0.44

Liabilities. Temporary equity, and stockholders' equity

Current Liabilities:

Short-term debt

1,604

1,323

Accounts payable

2,748

2,969

-221

-7.44

Accrued compensation and benefits

3,475

3,123

11.27

Deferred income

1,092

1,021

71

6.95

Other accrued liabilities

2,205

2,096

5.20

Total Current Liabilities

4,895

4,078

20.03

Long-term debt

16,019

13,568

2,451

18.06

Long-term deferred tax liabilities

12,107

13,165

-1,058

-8.04

Other long-term liabilities

3,775

4,397

-622

-14.15

Commitments and contingencies

3,278

2,972

10.30

Temporary equity

0

Stockholders' equity

Preferred Stock

Common Stock

21,781

21,536

1.14

Accumulated other comprehensive income (loss)

1,234

-568

-46.03

Retained earnings

33,418

35,477

-2,059

-5.80

Total stockholders' equity

55,856

58,256

-2,400

-4.12

Total liabilities, temporary equity, and stockholders' equity

91,956

92,358

-402

-0.44

Primary Sources and Uses of Cash

As per the Annual Report (2014: 47) of Intel Corporation, its main source of cash is generated from operations. The company has a diverse investment portfolio that it constantly analyzes centered in the issuer, the industry and also the nation. Another source of cash is borrowing through commercial paper. However, this amount is borrowed after the approval by the Board of Directors. The deployment of the cash by the company is mainly directed towards manufacturing of products. In addition, the company has been keen on expanding its business in order to solidify its global status and position (Annual Report, 2014).

Financial Ratio Analysis

Comparative Chart Showing Key ratios

Ratio

2014

2013

Intel

Industry Average

Intel

Industry Average

Current Ratio

1.73

2.01

2.36

2.18

Quick Ratio

1.15

1.71

1.74

1.87

Cash Ratio

0.88

1.23

1.48

1.37

Operating Profit Margin

27.47%

21.66%

23.32%

23.53%

Net profit Margin

20.95%

18.90%

18.25%

18.95%

Return on Equity

20.51%

17.83%

16.51%

23.13%

Return on Assets

12.78%

11.53%

10.42%

12.47%

Inventory Turnover

4.71

4.76

5.08

16.39

Receivable Turnover

14.33

14.25

14.71

8.12

Total Asset Turnover

0.61

0.64

0.57

0.66

Sourced from: Bloomberg, Morning Star, Nasdaq, CSI Market, Stock Analysis on Net, Intel Corporation Website.

The cash ratio or the cash coverage ratio is a liquidity ratio that defines the firm's ability to cover or deal with current liabilities with cash and cash equivalents. The cash ratio of Intel Corporation deteriorated from the year 2013 to 2014. The liquidity of the company is unsatisfactory because it is lower compared to the industry. The reason for this might be that Intel has unloaded its cash to be utilized in order to earn a greater return for the equity owners. The current ratio is a liquidity measure for the current assets with respect to the current liabilities for establishing and determining whether the company has sufficient assets that can be liquidated instantaneously in order to settle debts and obligations. The current ratio of Intel declined from 2.36 to 1.73 to a level lower compared to the industry average. Nonetheless, the liquidity of the company can be considered to be satisfactory as it is greater than one. On the other hand, the quick ratio is calculated as cash and short-term marketable securities plus receivables divided by current liabilities. It is comparable and can be equated to the current ratio but it does not include inventories. The quick ratio of Intel similar to the other liquidity ratios declined in the two years. However, the quick ratio declined significantly and was lower compared to the industry average. because the main reason for its poor quick ratio could be because in 2014, the company offloaded majority of its cash for investment projects. However, the though it can be improved, the liquidity of the company appears strong.

The operating profit margin of Intel Corporation increased from 23.32% to 27.47%, a rate that is significantly higher than the industry average. This implies that Intel has effectively utilized its resources compared to other companies in the industry and generates 27.47 cents for every dollar invested in its business operations. This net profit margin is indicative of the profitability levels of the company with reference to the net income in association to the revenues of the firm. The net profit margin ratio of Intel Corporation increased from 18.25% in 2013 to 20.95% in 2014, a rate that is comparatively higher than the industry average. The profitability of Intel Corporation considering this net profit margin ratio is deemed adequate and it is higher compared to the present industry average. In the year 2014, the Return on Equity (ROE) ratio of the company increased to 20.51% from 16.51%. This is a significant leap showing that the company effectively utilized it's the resources contributed by the shareholders. The industry average declined significantly while the company showed a better performance. Similar to the other profitability ratios, the return on assets (ROA) ratio also increased from 10.42% to 12.78% and was higher than the industry average. This shows that Intel properly utilizes its assets to generate returns as the company attains 12.78 cents for every dollar invested on its assets. Overall, it can be seen that the profitability of Intel is satisfactory.