Intel Corporation: Financial Ratio Analysis

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Introduction

The financial ratio analysis will be carried for Intel Corporation. Intel Corporation is a public company that is based in the US. It was established in 1968. It operates in the semiconductor industry. Intel Corporation trades on NASDAQ with the ticker symbol INTC. Besides, it is a component of Dow Jones Industrial Average, S&P 500, and NASDAQ-100 (Intel Corporation, 2014). The paper seeks to carry out ratio analysis for a period of three years.

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Ratio analysis

Liquidity ratios

2011 2012 2013 Industry average
Current ratio 2.15 2.43 2.36 3.28
Quick ratio 1.54 1.71 1.12 2

The liquidity ratios give information on the financial strength of a company. The current ratio ranged between 2.15 and 2.43 during the period while the quick ratio ranged between 1.12 and 1.71. The ratios show that the company is in a financial position to settle current obligations using quick and current assets with ease. However, both ratios were lower than the industry averages (CSIMarket.com, 2014). This implies that the financial strength of the Intel Corporation is lower than the prevailing rate in the industry.

Asset management ratios

2011 2012 2013 Industry average
Inventory turnover 5.16 4.57 4.76 4.28
Total asset turnover 0.80 0.69 0.60 0.69
Fixed asset turnover 2.60 2.07 1.77 2.13
Day’s sales outstanding 22.03 25.60 25.67 22.10

The asset management ratios provide information on the level of efficiency of the company. The inventory turnover declined from 5.16 to 4.76. Inventory turnover shows the number of times an entity replenishes stock within a financial year. The ratios for the three years were higher than the industry average.

Total asset turnover declined from 0.80 to 0.60 (Intel Corporation, 2014). This implies that the sales created from an element of assets declined. The ratios were slightly higher than the industry averages. The fixed asset turnover ratio estimates the amount of sales that can be made from a unit of fixed asset. The value declined from 2.60 in 2011 to 1.77 in 2013. In the case of the day’s sales outstanding, the values increased from 22.03 in 2011 to 25.67 in 2013.

The increase shows that the customers are taking more days to pay debts. It can be noted that the ratios are slightly higher than the industry averages (CSIMarket.com, 2014). A declined in the values of the ratios indicates deterioration in the level of efficiency in the company.

Debt management ratios

2011 2012 2013 Industry average
EBITDA coverage times-interest earned ratio 434.68 166.26 52.68 38.4
Total debt to total assets 0.1030 0.1594 0.1458 0.1623

The interest coverage ratios declined from 434.68 in 2011 to 52.68 in 2013. Even though the ratios are high and above the industry average, the number of times that the company can pay interest expense from earnings before interest and taxes declined. The total debt to total assets ratio increased from 0.1030 to 0.1458.

The increase shows that the proportion of assets that is financed by debt increased. The increase can be attributed to the increase in both total assets and debt. Further, it can be noted that the ratios were lower than the industry average (CSIMarket.com, 2014). In general, the level of debt in the capital structure increased. This implies that the leverage level rose.

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Profitability ratios

2011 2012 2013 Industry average
Return on common equity 27.15% 22.66% 17.58% 14.43%
Return on total assets 19.27% 14.16% 10.89% 10.01%
Basic earning power 24.57% 17.35% 13.31% 9.21%
Profit margin on sales 23.97% 20.63% 18.25% 13.69%

The return on common equity gives an indication on the returns generated from the investments made by shareholders. The ratios dropped from 27.15% in 2011 to 17.58% in 2013. Further, during the three-year period, the values of the ratios were higher than the industry average (14.43%). The net earnings generated from a unit of total assets, return on assets, declined from 19.27% in 2011 to 10.89% in 2013. The ratios were higher than the industry average (10.01%).

The basic earnings power and profit margin on sales also decreased from 27.15% in 2011 to 17.58% in 2013 and from 23.97% in 2011 to 18.25% in 2013 respectively. It can be noted that all the profitability ratios declined between 2011 and 2013. Also, in terms of profitability, performance of the company is higher than the industry averages (Intel Corporation, 2014). The decline in profitability can be attributed to a significant decline in the value of sales and an increase in the cost of operation (Intel Corporation, 2014).

Market value ratios

2011 2012 2013 Industry average
Market/book 2.6 2.0 2.2 3.2
Price/earnings 10.1 9.7 13.8 21.5
Price/cash flow 6.3 5.6 6.4 1.2

The market/book ratio ranged between 2.0 and 2.6. The values are quite low when compared with the industry average (3.2). The price/earnings ratio ranged between 9.7 and 13.8. Thus, the valuation of the share price in relation to earnings per share improved slightly over the period. An improvement of this valuation ratio implies that the shareholders will be expecting higher returns in the future. The price/earnings ratio for Intel Corporation is lower than the industry average (21.5). This could be an indication that the company has a lower valuation than the industry.

The price/cash flow ratio declined from 6.3 in 2011 to 5.6 in 2012. The ratio later increased to 6.4 in 2013. This ratio gives a relationship between the price of the stock and cash flow per share (Intel Corporation, 2014). A higher value of the ratio means that the stock is overvalued (Yahoo Finance, 2014). Based on the data above, it can be observed that the price/cash flow ratio is higher than the industry average (1.2). This shows that the company is overvalued.

Conclusion

In summary, the liquidity ratios show that the company is in a position to settle current obligations with ease. Even though the ratios were high, the overall financial strength of the company is lower than the industry average. The asset management ratios declined significantly. This shows a reduction in efficiency. Further, the debt management ratios deteriorated during the three-year period and it implies that the leverage level of the company rose.

Profitability ratios show that the earnings of the company dropped. Also, the market value ratios show that the value of the company remained fairly stable during the period. The ratio analysis above shows that the overall financial performance of the company deteriorated. The decline can be attributed to a number of factors such as swings in the economy, changes in consumption, high competition, rapid change in technology and market advancements, a change in the combination of products offered by the company, challenges that arise from venturing into new international markets, and escalating cost of production.

References

CSIMarket. (2014). Semiconductor industry. Web.

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Intel Corporation. (2014). Financials and fillings – annual reports, 10-Ks, and proxy statements. Web.

Yahoo Finance. (2014). Intel corporation (INTC). Web.

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BusinessEssay. (2022, May 12). Intel Corporation: Financial Ratio Analysis. Retrieved from https://business-essay.com/intel-corporation-financial-ratio-analysis/

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"Intel Corporation: Financial Ratio Analysis." BusinessEssay, 12 May 2022, business-essay.com/intel-corporation-financial-ratio-analysis/.

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BusinessEssay. (2022) 'Intel Corporation: Financial Ratio Analysis'. 12 May.

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BusinessEssay. 2022. "Intel Corporation: Financial Ratio Analysis." May 12, 2022. https://business-essay.com/intel-corporation-financial-ratio-analysis/.

1. BusinessEssay. "Intel Corporation: Financial Ratio Analysis." May 12, 2022. https://business-essay.com/intel-corporation-financial-ratio-analysis/.


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BusinessEssay. "Intel Corporation: Financial Ratio Analysis." May 12, 2022. https://business-essay.com/intel-corporation-financial-ratio-analysis/.