Intel Financial Statement Analysis Paper

Sue Christensen
Intel Financial Statement Analysis Paper
I. Introduction
"2010 was a year for the record books. Our revenue, operating profit, net income, and gross margin were
all the highest in Intel's history. Growth opportunities, our strong product lineup, and our industry lead in
manufacturing process technology give me confidence that 2011 will be even better." Paul S. Otellini,
President and Chief Executive Officer. This is a quote from the Intel 2010 Annual Report and is the
beginning of the financial analysis of Intel.
Intel is a company that designs and makes computer parts, such as motherboards, chips, microprocessors
and wireless and wired connectivity products. Intel strives to increase the efficiency and performance of
their products and those that they support.
II. M D & A and CEO & Chairman of the Board letters
From both the letter from the CEO and from the Chairman we can see that Intel has a presence in the
community. They sponsor the annual Intel Science Talent Search and Intel International Science & The
Public, programs that give youth opportunities to show their accomplishments and compete for
scholarships and awards. They have also had some increases in their business in 2010 with the acquisition
of McAfee, Texas Instruments cable division, and Infineons Wireless solutions. They are moving forward in
expanding the extent of their business. Intel is not just a producer of computer parts but has now moved
into hardware and software to solve the issues that computers, and other technology, have encountered in
the last few years. The financial data available in the financial statements is summarized and related to
1 | Page
Sue Christensen
the growth and stability of the company in 2010. The Chairman states that Intel plans to repurchase stock
and increase dividends. She also indicates that Intel will invest in acquisitions, capital additions and
research and development.
The audit opinion given for both the financial statements and the internal financial controls of Intel is an
unqualified. The audit letter for the financial statements discusses the financial statements, the cash flow
statement, the income statement and the stockholders equity statement for the previous three years and
state that it is in their opinion a correct representation of the company. The audit letter for the internal
financial controls reliability of Intels financial reporting and discusses three policies and procedures Intel
uses.
The Management Discussion & Analysis (MD&A) has some required items that may be difficult to see such
as liquidity, capital expenditures, financing resources, transactions that could affect continuing operations,
a breakdown of sales into price vs volume, and material changes between costs and revenues. The MD&A
is not always as detailed as it could be and sometimes contains information that could be considered
negative, or that is a possibility with no actual probability or predictions for the future. Included in the M D
& A should be information about the liquidity, capital expenditures, financing resources, it may also include
PR fluff. Because it is so comprehensive it may be difficult to see each of these items. According to the
MD&A overview section Intel had a record year in 2010 with strong market growth and a revenue increase
of 24% over 2009. This section discusses the acquisitions that have been started or completed in 2010 of
2 | Page
Sue Christensen
McAffee, Infineon and the patent agreement with NVIDIA. The next section is the Strategy section which
discusses some of the plans they have for the future;
Enable devices
Positively impact the world
Expand platforms
Strive to ensure Intel remains the best
The next section is the Critical accounting estimates sections which discusses the methods, estimates and
judgments that have a significant impact on the financial results that are reported. Next is the Results of
Operations, which says that the net revenue increased $8.5 billion or 24% over 2009 due to higher
microprocessor & chipset unit sales, as well as higher microprocessor average selling prices. In the
Business Outlook section the expectations for the future are discusses and the fact that this involves a
number of risks and uncertainties and incorporates financial projections & assumptions concerning the
performance of McAffee and the recently acquired Infineon. In the Liquidity & Capital Resources section it
discusses the operating, investing, and financing activities as well as the liquidity of Intel. Operating
activities are up $5.5 billion from 2009 due to higher net income, inventories have increased, accounts
receivable has increased due to higher sales at the end of the 4th quarter, and accounts payable has
increased due to the timing of payments. Intels major revenue sources include the PC Client Group
(PCCG) and the Data Center Group (DCG).
3 | Page
Sue Christensen
Year
2010
PCCG
72%
DCG
20%
Total revenue
$43,623
2009
75%
18%
million
$35, 127
18%
million
$37,586
2008
74%
million
(Figure 1)
As you can see in Figure 1 above, these two groups make up more than 90% of Intels revenue. Investing
activities capital expenditures, net investment purchases, disposals and cash used for acquisition are
discussed. Financing activities consisted of repurchases of common stock, payment of dividends, issuance
& repayment of long-term debt and sales of shares through employee incentive plans. Cash generated by
operations is the primary source of liquidity and as of 12/25/10, cash and cash equivalents, marketable
debt instruments & short-term investments totaled $21.5 billion. The Fair Value of Financial Instruments
discusses that when determining fair value you must consider the principal or most advantageous market,
credit risk is factored in as well. In the final section, Contractual Obligations & Off-Balance-Sheet
4 | Page
Sue Christensen
Arrangements it again discusses the acquisition of McAffee and Infineon and the patent agreement with
NVIDIA. It also says that as of 12/25/10 there are no significant off-balance-sheet arrangements.
I think that the future is very good for Intel. They had a record year in 2010, they have acquired several
other firms McAffee, Infineon, the patent agreement with NVIDIA and they are expanding into other
markets. Their stock dividend increased in the 1st quarter of 2011 by 15% as compared to the 4th quarter
of 2010. Their gross margin percentage went up 9% from 2009 to 65.3% and their revenue increased
24%. My only concern is that they are expanding into markets that they may not be as familiar with and
that may spread them too thin in resources.
III. Balance Sheet
Intel Common -size balance sheets (percent) and horizontal/trend
analysis
%
2010 2009
$ change
change
Assets
Current Assets
$
Cash and cash equivalents
8.7% 7.5% 1,511
37.9%
17.9
10.0
Short-term investments
%
% 6,009
113.7%
Trading assets
Accounts receivable, net of
allowance for doubtful accounts of
$28 ($19 in 2009)
5 | Page
8.1%
8.8% 445
9.6%
4.5%
4.3% 594
26.1%
Sue Christensen
Inventories
5.9%
5.5% 822
28.0%
Deferred tax assets
2.4%
2.3% 272
22.4%
Other current assets
1.5% 801
39.8
% 10,454
32.4
% 674
98.5%
Property, plant and equipment, net
2.6%
50.0
%
28.3
%
Marketable equity securities
1.6%
1.5% 235
30.4%
Other long-term investments
4.8%
7.9% (1,153)
(27.6%)
Good will
7.2%
2.5%
8.1%
100.0
%
8.3% 110
10.1
% (229)
100.0 $
% 10,091
Short term debt
0.1%
0.3% (134)
Accounts payable
3.6%
3.5% 407
21.6%
Accrued compensation and benefits
4.6%
4.6% 440
18.0%
Accrued advertising
Deferred income on shipments to
distributors
1.6%
1.5% 234
30.3%
1.0%
1.1% 29
Total current assets
Other long-term assets

Total assets
Liabilities and stockholder's
equity
Current liabilities
6 | Page
49.4%
3.9%
(4.3%)
19.0%
(77.9%)
4.9%
Sue Christensen
Other accrued liabilities
3.2% 760
14.3
% 1,736
44.1%
Total current liabilities
3.9%
14.8
%
Long-term income taxes payable
0.3%
0.4% (3)
(1.6%)
Long-term debt
3.3%
3.9% 28
1.4%
Long-term deferred tax liabilities
1.5%
1.0% 371
66.8%
Other long-term liabilities

Commitments and
contingencies
Stockholder's equity
Preferred stock, $0.001 par value,
50 shares authorized; none issued
Common stock, $0.001 par value,
10,000 share authorized; 5,581
issued and 5,511
outstanding (5,523 issued and
outstanding in 2009) and capital in
excess of par
Accumulated other comprehensive
income (loss)
2.0%
1.9% 233
23.2%
0.0%
0.0%
Retained earnings
Total stockholders' equity
Total liabilities and
stockholders' equity
(Figure 2)
7 | Page
25.6
%
0.5%
52.1
%
78.2
%
100.0
%
28.2
% 1,185
0.7%
49.6
%
78.5
%
100.0
%
22.9%
(60)
7.9%
(15.3%)
6,601
25.1%
7,726
$
10,091
18.5%
19.0%
Sue Christensen
Figure 2 shows Intels balance sheet, common size and horizontal/trend analysis, as percentages to show
how each section compares to the others. Intel uses fair value and the use of estimates accounting
policies. They have assets that include cash and cash equivalents commercial paper, government bonds,
bank deposits and money market fund deposits short-term investments government bonds, commercial
paper, corporate bonds, bank deposits, asset-backed securities and money market fund deposits trading
assets government bonds, corporate bonds, commercial paper, marketable equity securities, municipal
bonds, asset-backed securities, bank deposits and money market fund deposits accounts receivable
inventories deferred tax assets property, plant and equipment goodwill long-term investments
corporate bonds, government bonds, bank deposits and asset-backed securities- and other current assets
loans receivable and derivative assets. Property, plant, and equipment seems to be the most significant
because they have invested the most money into it, but the short-term investments has the highest
percentage of change from 2009 to 2010 and could be where they are investing the most money currently.
Property, plant and equipment rose from 4.5 billion in 2009 to 5.2 billion in 2010, a 13.46% increase.
Included in this increase is the acquisition of McAfee and Infineon which significantly increased the assets
of Intel. The notes discuss the way that Intel reaches the fair value of their assets which is on a recurring
basis, meaning that the price paid to transfer a liability or to sell an asset at a specific measurement date
8 | Page
Sue Christensen
is the fair value. Changes in short-term investments can be seen from 2009 to 2010 with a 113% change
noted on the horizontal/trend analysis above in Figure 2.
Intels accounts receivable has increased 26.13% from 2009 to 2010 and sales have increased by 24.19%
but the allowance for doubtful accounts has significantly increased by 47.39%. Hewlett Packard accounts
for 21% and Dell accounts for 17% of these sales, if either of these companies discontinues purchasing
from Intel, or has significant financial issues it would have an immediate and severe effect on their sales
revenue and cause them to have difficulty in meeting their obligations. If the sales had increased
significantly and the accounts receivable and allowance for doubtful accounts were relatively close in
percentage then that could mean that they are collecting more in cash and would have fewer uncollectible
accounts. As stated in the MD&A, "The cash-generating power of our business was evident in 2010 with
$16.7 billion of cash from operations. From a financial condition perspective, we ended 2010 with an
investment portfolio of $21.5 billion, consisting of cash and cash equivalents, short-term investments, and
marketable debt instruments included in trading assets.
The liabilities that are included on the balance sheet are short-term debt, accounts payable, accrued
compensation and benefits, accrued advertising, deferred income on shipments to distributors, long-term
income taxes payable, long-term debt, long-term deferred tax liabilities and other current and long-term
9 | Page
Sue Christensen
liabilities. The accrued compensation and benefits is the highest and could be construed to be the most
significant, but the long-term deferred tax liabilities and the accrued advertising had the highest percent
change between 2009 and 2010.
Intel has several commitments for their facilities that are under lease through 2028 and some property
leases through 2062, as well as some commitments for construction and purchase of more land. Their
contingencies are many and varied and include an investigation by the European Commission for an
alleged violation of Article 82 and Article 54 and they were fined $1.447 billion, which they paid, but
appealed. There was also an investigation and fine issued by Korea for an alleged violation of monopoly
regulation and fair trade. This decision was also appealed and a decision was expected in 2011. There
were other lawsuits filed for various allegations all of which Intel is vigorously fighting against. Deferred
taxes are listed under the assets section of the balance sheet. The most significant component of deferred
taxes was the share-based compensation. The equity accounts included on the balance sheet include
preferred stock, common stock, accumulated other comprehensive income and retained earnings.
Operating expense is calculated by dividing total operating expenses by net sales. For instance, as seen
above the operating expenses for 2010 were $12,903 million and net sales were $43,623 million for an
operating ratio of 0.30. This ratio is one measure of the efficiency of a company. It is an indication of the
10 | P a g e
Sue Christensen
amount of sales revenue in dollars that it costs the company to make sales. This operating expense ratio
of 0.30 means that for every dollar of sales, Intel spent 30 cents to create that sale.
We need to look at this ratio over time and note the direction it is taking. If it is increasing over time then
the company is becoming less efficient, if is it decreasing, it is becoming more efficient. This is an
important consideration to look at in examining the financial statements of Intel. As you can see from the
common size income statement above the ratio went from 32% in 2008 to 39% in 2009 to 30% in 2010.
These percentages are very close and so if you look at them over time they are not really changing very
much. This is just one aspect that must be looked at in order to get a picture of the overall company
finances. It is a good idea to compare Intel with other like companies to see what their performance
benchmark would be. The operating ratio is a good indicator of a companys profitability because it is
based on the total cost of the business, and not just the gross margin. There are other things you should
consider as well, including total revenue, operating margin, cost of sales, liquidity, days in accounts
payable and accounts receivable and inventory position.
There are other ratios that are important to consider including the expense ratio to see if it increases as
the sales increase. For instance, if the operating expense ratio is 0.30 at the current level of sales, then if
sales increase by 10 percent next period but the ratio remains 0.30, the company has been able to realize
11 | P a g e
Sue Christensen
10
Research & Development/Net
2010
6576/43623=15.
2009
5653/35127=16.
2008
5722/37586=15.
revenue
07%
09%
22%
percent more revenue without increasing cost. Using both nominal and real sales numbers we can see that
the adjusted sales is very close to the actual sales percentage of change for both 2010/2009 and
2009/2008.
Research & Development increased from 2008 (15.22%) to 2009 (16.09%) by 0.87% but decreased in
2010 to 15.07% of net revenue as shown in the table below. As Intel was expending at the same time, this
is a concern that they are not also expanding the Research & Development area.
Marketing, general and administrative also increased from 2008 to 2009 by 8.1% and then decreased in
2010 by
Marketing/Net
2010
6309/43623 =
2009
7931/35127 =
2008
5452/37586 =
14.46%.
revenue
14.46%
22.60%
14.50%
12 | P a g e
8.14% to
Sue Christensen
This is also a concern as they were expanding and acquiring new markets, but spending less on marketing
as a percentage of net revenue.
IV. Statement of Equity & Income Statement
Intel
Common size income statement and horizontal/trend analysis
For the Years Ended 2010, 2009, & 2008
2010
13 | P a g e
2009
20092010 $
change
20092010 %
change
2,00
9
2,00
8
20082009
$
change
20082009 %
change
Sue Christensen
Operating expenses
43,6
23
15,1
32
28,4
91
12,9
03
100
%
35
%
65
%
30
%
35,1
27
15,5
66
19,5
61
13,8
50
100
%
44
%
56
%
39
%
Research and
development
6,57
6
15
%
5,65
3
16
%
Marketing, general and

administrative
Restructuring and
asset impairment
charges
Amortization of
acquisition-related
intangibles
6,30
9
0
14
%
0%
7,93
1
231
23
%
1%
18
0%
35
0%
15,5
88
117
36
%
0%
Net revenue
Cost of sales
Gross margin
Operating income
Gains (losses) on
equity method
investments, net
Gains (losses) on other
equity investments,
net
Interest and other, net
Income before taxes
Provision for taxes
Net income
(Figure 3)
14 | P a g e
231
109
16,0
45
4,58
1
11,4
64
1%
0%
37
%
11
%
26
%
5,71
1
(147)
(23)
163
5,70
4
1,33
5
4,36
9
16
%
0%
0%
0%
16
%
4%
12
%
(947)
(7%)
35,1
27
15,5
66
19,5
61
13,8
50
923
16%
5,65
3
16
%
5,72
2
15
%
(69)
(1%)
(1,622)
(231)
(20%)
(100%)
7,93
1
231
23
%
1%
5,45
2
710
15
%
2%
2,479
(479)
45%
(67%)
(17)
(49%)
35
0%
8,496
(434)
8,930
9,877
264
254
(54)
24%
(3%)
46%
173%
(180%)
(1104%)
(33%)
10,341
181%
3,246
243%
7,095
162%
5,71
1
(147)
(23)
163
5,70
4
1,33
5
4,36
9
100
%
44
%
56
%
39
%
37,5
86
16,7
42
20,8
44
11,8
90
100
%
45
%
55
%
32
%
16
%
0%
0%
0%
16
%
4%
12
%
0%
8,95
4
24
%
(1,38
0)
(376)
(4%
)
488
7,68
6
2,39
4
5,29
2
(1%
)
1%
20
%
6%
14
%
(2,459)
(7%)
(1,176)
(7%)
(1,283)
(6%)
1,960
16%
29
(3,243)
1,233
483%
(36%)
(89%)
353
(94%)
(325)
(67%)
(1,982)
(26%)
(1,059)
(44%)
(923)
(17%)
Sue Christensen
We can see in Figure 3 that common stock changed from 5,818 shares in 2007 to 5,511 shares in 2010, a
decrease of 307 shares or 5.3%. Shares were repurchased at a rate of 328 shares in 2007, 94 shares in
2008 and 80 shares in 2009. On the consolidated balance sheet the common shares were listed at 0.001
par value. As a result of the proceeds from sales of shares through employee equity incentive plans, the
share-based compensation, repurchase of common stock and the cash dividends declared the dollar
amount of common shares has increased each year from $12,111 million in 2007 to $16,178 million in
2010, an increase of $4,067 million or 15.1%. The accumulated other comprehensive income (loss)
column shows a loss in both 2007 and 2009, but an overall increase from 261 in 2007 to 333 in 2010. The
retained earnings increased from $30,848 million to $32,919 million, an increase of $2,071 million or 6.3%.
Cash dividends remained fairly equal for the three years presented, with just a slight variation, resulting
from the amount of dividends per share declared that increased from $0.5475 to $0.63 from 2008 2010.
One of the ways investors decide how much a stock is worth is by seeing how hard the money in a
company works. Return on equity can show how hard shareholders equity at Intel is working. The return
on equity for Intel for 2010 2009 is 27.5%, which means that for every dollar of shareholders equity Intel
made more than $0.275. This is what Intel makes on the dollar, but is not what a shareholder would make
in dividends on Intel stock. The return on equity can help us to know whether Intel is a good investment.
15 | P a g e
Sue Christensen
V. Statement of Cash Flows
Intel Summary Analysis Statement of Cash Flows
2010
% of
total
2010
2009
% of
total
2009
2008
% of
total
2008
Inflows (dollars in
millions)
$
16,692
$
41.9% 11,170
$
45.8% 10,926
48.7%
13,133
33.0% 7,756
31.8% 7,993
35.6%
assets
Return of equity
method
8,846
22.2% 2,543
10.4% 1,766
7.9%
investments
Proceeds from
divestitures
Other investing
activities
199
0.5% 449
1.8% 316
1.4%
0.0% -
0.0% 85
0.4%
218
0.5% 89
0.4% 34
0.2%
Operations
Maturities and sales
of
available-for-sale
investments
Maturities and sales
of trading
16 | P a g e
Sue Christensen
Increase (decrease) in
shortterm debt, net
Proceeds from
government
23
0.1% -
0.0% -
0.0%
grants
Excess tax benefit
from sharebased payment
arrangements
Issuance of long-term
debt
Proceeds from sales
of shares
through employee
equity
79
0.2% -
0.0% 182
0.8%
65
0.2% 9
0.0% 30
0.1%
0.0% 1,980
8.1% -
0.0%
incentive plans
587
$
39,842
Total
Outflows (dollars in
millions)
Additions to property,
plant
and equipment
Acquisitions, net of
cash
5,207
acquired
Purchases of
218
17 | P a g e
1.5% 400
100.0 $
% 24,396
13.6% 4,515
0.6% 853
1.6% 1,105
100.0 $
% 22,437
19.0% 5,197
3.6% 16
4.9%
100.0
%
19.7%
0.1%
Sue Christensen
available-forsales investments
17,675
Purchases of trading
assets
8,944
Origination of loans
receivable
498
Investments in non-marketable
46.1% 8,655
36.4% 6,479
24.5%
23.3% 4,186
17.6% 2,676
10.1%
1.3% 343
1.4% -
0.0%
equity investments
Increase (decrease) in
short-
393
1.0% 250
1.1% 1,691
6.4%
term debt, net
0.0% 87
0.4% 40
0.2%
Repayment of debt
Repurchase of
common stock
157
0.4% -
0.0% -
0.0%
Payment of dividends
Total
Change in cash and
cash
equivalents
(Figure 4)
18 | P a g e
1,736
$
3,503
$
38,331
$
1,511
4.5% 1,762
$
9.1% 3,108
100.0 $
% 23,759
$
637
7.4% 7,195
$
13.1% 3,100
100.0 $
% 26,394
$
(3,957)
27.3%
11.7%
100.0
%
Sue Christensen
(Figure 5)
19 | P a g e
Sue Christensen
(Figure 6)
20 | P a g e
Sue Christensen
(Figure 7)
21 | P a g e
Sue Christensen
(Figure 8)
22 | P a g e
Sue Christensen
These statements represents the summary analysis of Intels statement of cash flows for 2008 2010. It
shows the inflows and outflows over that three year period. The % change columns show the cash inflows
as a percentage of the total inflows and the outflows as a percentage of total outflows. The $ change
columns show the actual change in dollar amounts between 2008 2009 and 2009 2010. The total cash
inflows increased from $22.4 million to $39.8 million or 56.3% and cash outflows from $26.4 million to
$38.3 million or 69.0%. This shows that the activity of Intel has increased sharply over this three year
period.
Analysis of Cash Inflows
As the statement above shows, operations supplied 41.9% of needed cash in 2010, 45.8 % in 2009 and
48.7% in 2008. Because they had positive cash flow from operations in all three years they did not have to
borrow heavily as evidenced by the low percentages of short and long-term debt, 0.1% in 2010, 8.1% in
2009, and 0.0% in 2008. There is a slight increase in 2009 due to the need to borrow to cover the
negative amounts in investing activities and the repayment of debt. Borrowing is another way to generate
cash other than operating activities, although operating activities are the preferred method. If methods
other than operating activities are used to generate most of the cash of a company there should be further
inquiries made. Investing activities made up 56% of the total in 2010, 44.4 % in 2009 and 45.5% in 2008,
while financing activities were 2% in 2010, 9.7 % in 2009, and 5.8% in 2008. The high percentages of
23 | P a g e
Sue Christensen
investing activities are due to the maturities and sales of available-for-sale investments and the purchases
of trading assets.
Analysis of Cash Outflows
Investing activities made up 85.9% of the outflows in 2010, 79.1 % in 2009, and 60.8% in 2008. Most of
this was due to purchases of available-for-sale investments and purchases of trading assets that are held
for a short term and then sold for a profit. Also making up a good part of these percentages is the capital
expenditures (additions to property, plant and equipment) which decreased slightly between 2008 and
2009 from 19.7% to 19.0% and then a more significant decrease from 2009 to 2010 from 19.0% to 13.6%
of the totals, but the actual expenditures were higher in 2010 than 2009, going from $5.2 million in 2008,
to $4.5 million in 2009 and $5.2 million in 2010. The dividends paid increased from 11.7% in 2008 to
13.1% in 2009 then dipped slightly in 2010 to 9.1%. The payment of dividends is done, in theory, only if
there is excess cash not needed for cash outflows of expansion, repayment of debt or purchase of
property, plant, or equipment. Because there was positive cash and cash equivalents for all three years
this was possible. This was discussed in the letter from the Chairman of the Board as one of Intels goals.
Capital expenditures are a good investment in the company to create future revenues and more cash flows
from operations. The repurchase of common stock made up 27.3% of the total outflows in 2008, 7.4% in
2009 and 4.5% in 2010, with the actual amount repurchased in 2009 at just $1.8 million, a significant
24 | P a g e
Sue Christensen
decrease from the $7.2 million in 2008. The Chairman also discusses this in her letter as another goal
that Intel has, and because the opportunity arose in 2009 to repurchase stock Intel had to borrow money.
Attaining one goal may create some risk by creating more liabilities. Repayment of debt was at 0.0% for
both 2008 and 2009 and just slightly increased in 2010 to 0.4%. Because most of the cash inflows were
generated by operations and not through debt this is to be expected.
VI. Ratio Analysis
a. Liquidity There are several ratios that can be used to determine the liquidity of Intel. We will
discuss here the current ratio and the quick ratio, both of which help us determine short-run
solvency, and the average collection period and days inventory held, which help us see the liquidity
of current assets.
25 | P a g e
Sue Christensen
(Figure 9)
Current Ratio
2010
Current assets/Current liabilities
3.39
Quick Ratio
2010
Current assets Inventory/Current
2.99
2009
Industry
2.79
average
2.07
2009
Industry
2.40
average
1.24
liabilities
Average Collection Period
2010 2009
Net accounts receivable/average daily
24
Industry
23.6
average
60.0
2009
Industry
sales
Days Inventory Held
2010
average
Inventory/Average daily cost of sales
90.6 68.8 85.5
Cash flow from operating activities ($ millions)
2010 2009
16,6 11,1
26 | P a g e
92
70
Sue Christensen
The current ratio for Intel in 2010 is 3.39 times. This means that at year end 2010, current assets
covered current liabilities 3.39 times, up from 2009 at 2.79 times. In order to truly analyze the
current ratio we would need to look at a longer period of time than just two years and we would need
to compare it to the industry average of 2.07 times. As you can see, Intel is higher than the industry
average which if taken just by itself looks good. Current ratio is limited by the fact that it includes
inventory and accounts receivable which may not be immediately liquid and it is also based on the
balance sheet which is just a snapshot of a particular date and it could vary significantly from period
to period. We need to look at other aspects of the liquidity of Intel. The quick ratio for 2010 is 2.99
times and for 2009 is 2.40 times, much higher than the industry average of 1.24. The quick ratio is a
better test of short-run solvency than the current ratio as it does not include inventory, considered to
be the least liquid asset. Again, this ratio is limited but does give us a glimpse into the liquidity of
Intel. We need to look further at the average collection period. This ratio is 24 days for 2010 and
23.6 for 2009, much lower than the industry average of 60 days. This ratio shows how many days on
average it takes to convert accounts receivables into cash, making it liquid. The average collection
27 | P a g e
Sue Christensen
period gives us information about how long it takes to collect from Intels customers. If the collection
period is 30 days and it is taking 60 days to collect from customers the credit policy is too lenient.
We can see from Intels average collection ratio of 24 days in 2010 that they have a strict policy of
collections and are doing a good job of collecting on their accounts. The last liquidity ratio we will
discuss is days inventory held. For 2010 this ratio is 90.6 and for 2009 68.8, while the industry
average is 85.5 days. In 2010 Intel held its inventory for an average of 90.6 days before it was sold
to customers. This is much higher than the days held in 2009, which is due to the acquisition of
McAfee and Infineon and their expansion into other markets which resulted in an increase in
inventory.
b. Leverage these ratios help us see the amount of debt and the coverage of debt that Intel has and
so we will look at the debt to assets and debt to equity as well as the times interest earned, and the
long-term debt to total capitalization ratios. The debt to assets ratio for 2010 is 21.6% and for 2009
21.5% while the industry average is 51.70%. This ratio
considers the proportion of all assets that are financed with debt (Understanding Financial
Statements, pg. 207). Intel has 21.6% of assets financed with debt in 2010 and 21.5% of assets
financed with debt in 2009, which is much lower than the industry average of 51.70%. The long-
28 | P a g e
Sue Christensen
term debt to total capitalization ratio for 2010 was 4.03% and for 2009 was 4.68%, much lower than
the industry average of 31.03%. The debt to equity ratios were 27.65% in 2010 and 27.31% in 2009,
much higher than the industry average of 1.07%. This indicates a very high degree of risk as this
ratio describes the relationship between funding from debt (creditors) and funding from investors.
The times interest earned ratio was 118.4 times for 2010, 85 times for 2009 and 25.4 times for 2008
while the industry average is 4.39. This indicates that Intel is able to make their interest payments
118.4 times in 2010, a much higher rate than in 2008 and significantly higher than the industry
average.
Debt to Assets
2010
Total liabilities/Total assets
2009
Industry
21.6
21.5
average
51.70
2010
2009
Industry
27.31
average
1.07
Debt to Equity
Total liabilities/Stockholders equity
27.6
5
Long-term Debt to Total Capitalization
2010 2009
29 | P a g e
Industry
Sue Christensen
Long-term debt/Long-term debt + Stockholders
4.03
4.68
average
31.03
2009
Industry
85
average
4.39
equity
Times Interest Earned
2010
Operating profit/Interest expense
118.
4
(Figure 10)
c. Asset management these ratios help us to look at the operating efficiency of Intel and include the
accounts receivable turnover, inventory turnover, fixed asset turnover, total asset turnover and
return on total assets ratios. Accounts receivable turnover was 15.22 times in 2010, 15.45 times in
2009, and the industry average is 6.1 times. This indicates how many times accounts receivable is
collected in cash. Intels is well above the industry average for both 2010 and 2009. This and some
of the other ratios in the asset management section tell us exactly what the average collection
period, days inventory held and days payable outstanding measure, just a different way to show the
same information. Inventory turnover was 4.0 times for 2010, down from 5.3 times in 2009, both
were higher than the industry average of 4.3 times. These ratios have a direct correlation to the
days inventory held liquidity ratios and move up or down respectively. Intel sold its inventory faster
in 2010 than in 2009 which is proven by this ratio.
30 | P a g e
Sue Christensen
The fixed asset turnover was 2.4 times in 2010 and 2.0 times in 2009, both significantly lower than
the industry average of 9.2 times. This ratio considers the property, plant and equipment
investment of a firm, and Intel was acquiring new assets during these years which affected this ratio.
The total asset turnover for Intel in 2010 was 0.69 times and in 2009 was 0.66 times, below the
industry average of 1.3 times. These two ratios, the fixed asset turnover and the total asset
turnover, indicate the effectiveness of generating sales from asset investments. Intel had large
amounts of cash, marketable securities, and other long-term assets that are causing these ratios to
be lower as well, because they are not reported in sales, but in non-operating revenue accounts.
Return on total assets was 18.14% in 2010 and 8.23% in 2009, well above the industry average of
2.38%. This ratio indicates the amount of profit earned relative to the level of investment in total
assets. (Understanding Financial Statements, pg. 210)
31 | P a g e
Sue Christensen
Accounts Receivable Turnover

2010
2009
Industry
Net revenue/net accounts receivable

15.22
Inventory Turnover
2010
15.45
average
6.1
2009
Industry
Cost of sales/Inventory
5.30
average
4.3
2009
Industry
2.0
average
9.2
2009
Industry
0.66
average
1.3
2009
Industry
4.03
Fixed Assets Turnover
2010
Net revenue/Net property, plant,
2.4
equipment
Total Asset Turnover
2010
Net revenue/Total assets
0.69
Return on Total Assets
2010
(Figure
Net earnings/Total assets
18.14
%
32 | P a g e
average
8.23% 2.38%
11)
Sue Christensen
Intel had a large increase in the return on total assets in 2010, indicating the increase in profit
earned, $11,464 million in 2010 as compared to $4,369 million in 2009.
d. Profitability these ratios help us see the margins and returns of Intel and we will use the gross profit
margin, operating profit margin and net profit margin as well as the return on total assets and return
on equity ratios.
The gross profit margin was 65.31% for 2010 and 55.69% in 2009, higher than the industry average
of 36.10%. This shows the relationship between Intels revenues and the cost of sales, and their
ability to both control costs of inventories or manufacturing of products and to pass along price
increases to customers. The operating profit margin was 35.73% in 2010 and 16.26% in 2009,
significantly higher than the industry average of 3.30%. The net profit margin was 26.28% and
12.44% in 2010 and 2009, respectively, with the industry average at 1.86%. These margins show
Intels ability to translate sales dollars in to profits at different stages of measurement.
(Understanding Financial Statements, pg. 209)
Gross Profit Margin

2010
33 | P a g e
2009
Industry
Sue Christensen
Gross profit/Net sales
65.31
%
Operating Profit Margin
2010
Operating profit/Net sales
55.69
average
36.10%
%
2009
Industry
35.73
16.26
average
3.30%
2010
2009
Industry
26.28
12.44
average
1.86%
Net Profit Margin
Net earnings/Net sales
%
Return on Total Assets
2010
Net earnings/Total assets
%
2009
Industry
18.14
8.23
average
2.38%
2010
2009
Industry
23.19
10.48
average
4.98%
Return on Equity
Net earnings/Stockholders equity
34 | P a g e
Sue Christensen
(Figure 12)
e. Market measures include the earnings per share, price to earnings. The earnings per share for Intel
was 2.06 in 2010 and 0.79 in 2009 with the industry average being 0.66. The price to earnings was
10.64 in 2010 and 26.37 in 2009, both much lower than the industry average of 48.24. These ratios
Earnings per Share
2010
Net earnings/Average shares outstanding
Price to Earnings
2009
Industry
2.06
0.79
average
0.66
2010
2009
Industry
26.37
average
48.24
Market price of common stock/Earnings per share 10.6

4
(Figure 13)
V. Conclusion
In conclusion I think that Intel has a bright future. They have started to expand and diversify their product
base and as long as they dont spread themselves too thin they should be able to cover their liabilities.
The major findings include the following:
35 | P a g e
Sue Christensen
Strengths
Favorable economic and industry outlook home PC use is increasing, data centers expanding
Aggressive marketing and research and development strategies
Increased profitability in 2010, and strong positive generation of cash flow from operations
Weaknesses
Intel is in a very competitive market that is sensitive to economic fluctuations

Two major customers, Hewlett Packard and Dell, that contribute 90% plus of their revenue
36 | P a g e

Intel Financial Statement Analysis Paper

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Intel Financial Statement Analysis Paper

Uploaded by

Copyright:

Available Formats

Sue Christensen

Intel Financial Statement Analysis Paper

Deferred tax assets

Other current assets

Property, plant and equipment, net

Marketable equity securities

Other long-term investments

Short term debt

Accrued compensation and benefits

Total current assets

Other long-term assets

Other accrued liabilities

Total current liabilities

Long-term income taxes payable

Long-term deferred tax liabilities

Other long-term liabilities

IV. Statement of Equity & Income Statement

Marketing, general and

V. Statement of Cash Flows

Intel Summary Analysis Statement of Cash Flows

term debt, net

Total liabilities/Stockholders equity

Long-term debt/Long-term debt + Stockholders

Accounts Receivable Turnover

Net revenue/net accounts receivable

Net revenue/Net property, plant,

Gross Profit Margin

Gross profit/Net sales

Operating profit/Net sales

Net Profit Margin

Net earnings/Net sales

Net earnings/Stockholders equity

Market price of common stock/Earnings per share 10.6

Intel is in a very competitive market that is sensitive to economic fluctuations

You might also like