Intel Financial Analysis and Industry Comparison
Intel Corporation was formed in 1968 by 2 engineers from Fairchild Semiconductor Company. Today it’s a leader in the semiconductor industry with a market capitalization of $169.9 billion. Below we will use Intel’s financial statements to do a short analysis of the last 3 years of operations and how they currently compare to the industry benchmarks. The ratios we will consider are the Current Ratio, Quick Ratio, Debt/Equity Ratio and Price/Earnings (P/E) Ratio. Ratio Analysis
Intel’s results for the last fiscal year, ending December 28, 2013, show revenues of $52.708 million. This is a decline of 1.2% year on year and a decline for the 2nd year. However, there was a sharp 23.8% increase in revenue from 2010 to 2011 thus current declines still put revenues above pre 2011 levels. Net income for 2013 was $9.620 million, a decline of 12.6% year on year and a decline for the 3rd year in a row. However, similar to revenues, there was a sharp 162.4% increase in net income from 2009 – 2010, thus net income for 2013 are above pre 2010 levels. Based on the current ratio Intel’s financial health appears to be sound. The current ratio for year-end (YE) 2013 was 2.36 vs. 2.43 in 2012 and 2.15 for 2011. This means for every $1 of debt they have $2.36 in assets to cover their obligations. The YE 13 quick ratio was 1.12, which means that the company is liquid enough to cover current liabilities. An ideal quick ratio is 1:1. Reviewing the YE 12 quick ratio of 1.71 and YE 11 of 1.54, it appears that during those years Intel was keeping to much cash on hand or had a hard time collecting on their receivables. This seems to have been fixed in the last fiscal year. The Debt/Equity ratio for YE 13 was 0.23; slightly lower that 0.26 in 2012 but much higher than 0.15 in 2011 and 0.04 in 2010. This means that Intel took on debt in 2011 & 2012 to finance growth. However, a ratio of 0.23 is not alarming because it means that the company’s assets are not financed by large amounts of debt and creditors do not have an equal stake in the company to investors. Finally, Intel’s P/E for YE 13 was 13.8 vs. 9.7 YE12 and 10.1 YE 11. The higher 2013 P/E ratio means that investors believe that Intel will have higher future earnings growth than in both 2011 & 2012. However, 13.8 is still well below the market average of 20-25. The P/E tells us how much investors are willing to pay for each $1 of earnings. Comparison to Industry
Alix Partners report that “the global semiconductor industry has struggled in the years following the 2010 industry-wide rebound” and “companies throughout the industry continue to grapple with several challenges”. Intel’s 3-year average revenue growth of 6.5 is well above the industry average of 3.7, showing that while the overall revenues are weak, Intel is still a leader in the industry. Alix Partners also state that some of the problems companies in the industry are facing are “intense competition, pricing pressure, and short and costly product life cycles”. These factors impact net revenues, and while Intel’s 3-year net income growth has decreased -5.7, it’s a smaller decrease than the industry average of -7.3. Intel’s YE 13 Debt/Equity ratio of 0.2 is below the industry average of 0.3, which means that Intel’s assets are financed with less debt then it’s competitors. Extending this analysis further, this also means that Intel’s shareholders have more of a claim on the firm’s assets then investors in Intel’s competitors.
A soft spot for Intel is it’s P/E ratio. The YE 13 P/E ratio was 13.8 vs. the industry average of 19.5. As of 26 September 2014, the trailing twelve-month (TTM) P/E ratio gap has decreased but Intel continues to lag with a TTM P/E ratio of 17.1 vs. the industry average of 22.7. This is meaningful because investors seem to have renewed confidence in Intel’s future earnings vs. their...
References: Alix Partners. (2014). Reviving Growth and Rebuilding Market. Retrieved from http://www.alixpartners.com/en/Publications/AllArticles/tabid/635/articleType/ArticleView/articleId/907/Reviving-Growth-and-Rebuilding-Market-Value.aspx#sthash.UfrDR4KR.dpbs
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