Intel Accounting and Business Techniques Used

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5. Accounting and Business techniques used.

2.5.1Financial Ratios

• Liquidity Ratios

It is very crucial that an organisation meets its day to day obligations as they fall due. It is possible that an organisation that has very good and positive looking financial statement may experience liquidity problems. Hence measuring liquidity allows the organisation to better monitor its cash flows. Two commonly used ratios to measure liquidity are shown below,

a) Current Ratio = Current Assets / Current Liabilities.

b) Quick or Acid Test Ratio = Current Assets - Inventory Current Liabilities

• Profitability Ratio.

“A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.” Source: (http://www.investopedia.com/terms/p/profitabilityratios.asp). Commonly used profitability ratios are shown below,

a) Gross Profit Margin = (Gross Profit / Sales) X 100%

b) Net Profit Margin = (Profit before Interest and Tax / Sales) X 100%

• Capital Structure Ratios

These ratios show the proportions of debt and equity used to finance an organisations operation’s as well as the effects of interest on working capital. Ratios commonly used are shown below,

a) Gearing Ratio = Long Term Debt / Equity

Or

Gearing Ratio = Long Term Debt / Long Term Debt + Equity

b) Interest Cover = Profit before Interest and Tax / Interest Payable

• Investment Valuation

These ratios are more important to shareholder and other stakeholders (especially stakeholders that have direct interest in the organisation). Returns to investors should be sufficient enough to compensate investors for the risk associated with the investment. Commonly used are as follows,

a) Return on Capital employed = PBIT X 100% Capital employed

b) Dividend Cover = Profit after Tax (PAT) – Preference Dividend
Gross Dividend on Ordinary Shares

c) Earnings Per Share = PAT – Preference Share Dividend Number of Ordinary Shares in Issue

Financial and business analysis, conclusions and recommendations

This section we take an in-depth critical look at the financial and business performance, analysing the financial information of Intel by using financial tools as mentioned in section 2.5.1 such as Financial Ratio Analysis. An analysis of Intel‘s non-financial information could be undertaken using business models mentioned in section 2.5.2 such as Porter’s Five Forces and Industry Life Cycle.

3.1Analysis of Intel Corporation’s financial performance

Financial ratios will be used in this section with specific interest in Intel‘s liquidity, profitability, capital structure, and investment valuations for the reporting periods ended 2006 to 2008 both years included. This is to assist draw conclusions on Intel’s financial performance and assist with the business analysis in section 3.2.

3.1.1Profitability

• Revenues

Intel’s revenues are made up mainly of sales from its Digital Enterprise and Mobility groups. These two groups mainly generate revenues through the manufacture and sale of chipsets, motherboards, and micro processors; they do however have other forms of income such as grants and...
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