Intel Corp Financial Statement Analysis

Paper Type:  Research paper
Pages:  6
Wordcount:  1602 Words
Date:  2022-06-15


Financial statement analysis entails the review of a company's financial statements with an aim to evaluate its performance. It aids in making management and economic decision therein. Majorly, financial statement analysis covers the four basic financial statements that comprise a report. They include the income statement, the balance sheet, the statement of cash flows, and the statement of changes in equity. In this case, therefore, the paper at analyzing the Intel Corp financial statement for the fiscal year ended 31st December 2016. Nonetheless, the analysis will cover three of the significant financial statements including the income statement, balance sheet, and the statement of cash flows ("Intel Corporation: 2016 Annual Report", 2018).

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A Brief Overview of Intel Corporation

Intel Corp refers to an American corporation that deals with technological services. It was founded by Robert Noyce and Gordon Moore, the semiconductor pioneers in the year 1968. It has it's headquarter located in Santa Clara in California, but it operates globally. It is ranked as the second largest company semi-conductor production company after Samsung Company. Intel Corp is known for developing the microprocessor that is commonly found in the personal computers ("Intel Corporation: 2016 Annual Report", 2018). It provides processors to the computer manufacturer including Apple Inc., Hewlett-Packard (HP), Lenovo, and Dell. Moreover, Intel Corp also manufactures other communication and computing devices such as flash disks, motherboards, integrated circuits, and embedded processors among others. Intel Corp stocks are traded in the American stock exchange market (Nasdaq) under the name NASQAQ INT. As at 2016, Intl Corp reported Earnings per share amounting to $ 2. 12. It was a decrease from $ 2. 33 EPS as at 26th December 2015.

Balance Sheet Analysis

The analysis entails the review of the critical elements of a balance sheet. The items include the current assets, fixed assets, current liabilities, long-term liabilities, and shareholders' funds. Current assets refer to the short-term assets that can be easily converted into cash and cash equivalents within the current financial year. They include cash, inventories, account receivables, prepaid assets, and short-term investments among others ("Intel Corporation: 2016 Annual Report", 2018). Fixed assets refer to the company assets that are maintained to be utilized for a long period. Unlike the current assets, they are not easily convertible to cash. They entail elements such as land, buildings, plant, machinery, equipment among others. The current liabilities refer to the short-term obligations of the firm such as account payables and other accrued liabilities. Long-term liabilities entail the company's obligations supposed to be settled in more than five years. Lastly, the shareholders' funds refer to the total interest of the shareholders in the company. It refers to the contribution of the shareholders' used to finance the assets and liabilities of the firm. It thus comprises of the ordinary shares, preference shares, reserves, and retained earnings among others.

Ratio Analysis

Various accounting ratios are significant in analyzing the Intel Corp balance sheet. The most fundamental ratios are the liquidity ratios:

Liquidity Ratios

These ratios investigate the liquidity position of the company by evaluating the relationship between the current assets and the currents liabilities. Upon assessing the liquidity ratios, investors can determine the validity of investing in the firm therein. The primary liquidity ratios include the current ratio, the quick ratio, and the cash ratio. The current ratio illustrates the ability of a firm to meet the short-term obligations using the short-term assets. The quick ratio is almost similar to the current ratio. Nonetheless, the acid test ratio measures how the company meets its short-term liabilities by the short-term assets without including the inventories. The cash ratio evaluates the efficiency of the company to finance its short-term liabilities using the liquid assets such as cash. In this case, therefore, the following figure illustrates the liquidity ratio of Intel Corp Company as at 31st December 2016 ("Intel Corporation: 2016 Annual Report", 2018).

In the table above, it is evident that Intel Corp has a favorable liquidity position. Ideally, a company ought to maintain the ideal current ratio of 2: 1. Based on the calculation above, Intel Corp has a cash ratio of 1. 75: 1; this is slightly lower compared to the ideal ratio of 2:1. This ratio shows that for every 1 US Dollars of current liabilities, the company has 1.75 US Dollars of current assets to cover the liabilities ("Intel Corporation: 2016 Annual Report", 2018).

Additionally, an ideal quick ratio is 1: 1. Intel Corp had a quick ratio of 1. 48: 1 that meets the measurements index of a favorable quick ratio. The ratio shows that for every 1 US Dollars of current liabilities, the company has 1.48 US Dollars of quick assets to cover the liabilities.

Furthermore, an ideal cash ratio should be 1.5: 1 and above. Based on this important performance index, Intel Corp has an excellent cash liquidity ratio. A cash ratio of 2.734: 1 shows that for every 1 US Dollars of current liabilities, the company has 2.734 US Dollars of cash and cash equivalents to cover the liabilities. In the above liquidity ratios, it shows a remarkable performance as Intel Corp is capable of covering all its short-term liabilities with the available short-term assets and thus translating to a sound liquidity position ("Intel Corporation: 2016 Annual Report", 2018).

Off-Balance Sheet Items

Intel Corp recognizes the contingent liabilities other than the essential elements of the balance sheet. Ideally, contingent liabilities entail the prediction of the probability of incurring a liability in future. In 2016, annual report, Intel Corp recognizes the loss on contingencies in the future. For instance, the company anticipates loss on items such replacement costs, product warranties, repair on product defects, impairment loss or any legal and regulatory proceeding. The contingency loss is charged on the annual income of the company if it occurs. However, the possible loss has to be estimated reasonably ("Intel Corporation: 2016 Annual Report", 2018).

Profitability Ratios

Profitability ratios are used to measure the profitability position of a company. It illustrates how the company utilizes the available resources to generate profits. The following figure gives the various profitability ratios for the Intel Corporation ("Intel Corporation: 2016 Annual Report", 2018).

From the above analysis, Intel Corp maintains a good profitability position. Usually, an ideal gross profit margin should be 50% and above. It shows that of the total revenue that Intel Corp realized in 2016, the gross profits comprise up to 60% indicating a remarkable performance. Subsequently, a god net profit ratio should be 25% and above. Although, the net profit margin is 21. 68% below the ideal rate, there is a slight variance. The net profit margin still represents a good proportion of the total revenues realized in that year ("Intel Corporation: 2016 Annual Report", 2018).

The rate of return on total assets (ROA) shows the efficiency of a company to generate revenues using the available assets. In this case, a good ROA should be 5% and above. In the case of Intel Corp profitability ratios, it maintains an 11. 36% ROA is representing a reasonable rate as it is above the ideal 5% ratio.

The rate return on the return of the shareholder's equity represents the proportion of the net income compared to the total shareholders' equity. It shows the company's profitability position on its efficiency to generate income from the shareholders' investment. It is recommendable that a company maintains an ROE of 100% and above. Nonetheless, since Intel Corp reports a ROCE of 15. 58%, it does not mean that it stands a poor profitability position. As long as the return is positive, it shows a good performance as the investors still acquire some benefits. It means that the company generates up to 15.58% income from the shareholders' investments ("Intel Corporation: 2016 Annual Report", 2018).

The rate of return on capital employed measures the efficiency of a company to generate profits from the capital employed. In this case, capital employed represents the shareholders'' equity contribution and the long-term debt used to finance the company. For a company to be effective, then, it should maintain a high ROCE. Nevertheless, it is also recommendable for a company to maintain a positive ratio. Therefore, based on the Intel Corp financial statistics, it stands a good profitability position as it keeps positive ROCE of 14. 82%.

Capital Structure Ratios/ Gearing Ratios

These ratios measure the proportion of the company's debts to the available equity capital. The ratios are significant in determining the financial risk of the company. For instance, upon evaluating the debts and equity, in a case where the debts exceed the equity capital, it shows that the company stands a financial risk. It is recommendable to maintain more equity capital as compared to the company's debts therein. The figure below shows the analysis of the capital structure in the Intel Corp Company in 2016 ("Intel Corporation: 2016 Annual Report", 2018).

The debt ratio shows the proportion of the company assets that are financed through borrowed funds. The debt ratio measures the debt leverage of a company. Ideally, for a company to stand a lower financing risk, it has to maintain a low debt ratio of 0.4 and below. Intel Corp maintains a 0.41 debt ratio and thus showing a remarkable performance as it falls within the ideal range.

The debt to equity ratio shows the proportion of debts that the company is utilizing to finance the assets relative to the shareholders' investments. It thus measures the financial leverage of the company. In the financial risk perspective, a company needs to maintain a low debt-equity ratio of 1 and below. In this case, therefore, Intel Corp maintains a good financial risk position as it shows that a lower proportion of borrowed funds finance the shareholders capital. Nevertheless, a debt-equity ratio of 0.70: 1 shows that for every 100% shareholders' equity, the debt is 70% ("Intel Corporation: 2016 Annual Report", 2018).

The interest coverage ratio measures the efficiency of a company to meet the interest expense obligations using the net income realized. In order to maintain a favorable financial risk, the company ought to maintain interest r...

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Intel Corp Financial Statement Analysis. (2022, Jun 15). Retrieved from

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