3/27/2016

Intel Corporation
Financial Statement Analysis

ACCT2220-Financial Statement Analysis

Student Name: Sonenaly Hemsouvanh
Instructor: Shauna Hatfield
Semester: Spring 2016

Sonenaly Hemsouvanh
PART 1: INTRODUCTION
1.1 Business Overview
Intel Corporation is the worlds largest semiconductor chip for PCs and servers to
computing companies. They aim to be the preeminent computing solutions company that
powers the worldwide digital economy. The head-quarter is located in California.
1.2 Objectives
The purpose of this report is to analyze a common size and a trend financial statements
by using income statement, balance sheet and cash flow statement. The second objective is to
analyze financial ratios by selecting some of the ratios to analyze the business position of the
company. The third objective is to provide some conclusions to the company regrading to the
financial findings.
1.3 Report Outlines
This report will cover to six areas: introduction, managements representation, balance
sheet, income statement, financial ratios, and conclusion.

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PART 2: MANAGEMENTS REPRESENTATIONS
2.1. Letter from the CEO and the Chairman
The CEO expressed the company successful in the year 2010. Part of the main growth
was from the increasing of the PC. He mentioned that PC sales growth also continued at a
strong pace in most emerging markets. However, the company had to be aware of strong
competitors too. He also pointed out that the customers need more effective security
approaches to protect sophisticated viruses. In 2010, revenue contribution was $43.6 billion, up
24% compared to 2009. Operating income for 2010 rose to $15.6 billion, net income to $11.5
billion, and earnings per share to $2.01.
Intel planned to acquire McAfee which was useful information for analysts to evaluate
the future company performance. Other important information is from the chairman. She
indicated that Intel plan to invest in acquisitions, capital additions, and research and
development to build capacities. The investments can help Intel to be the most advanced
semiconductor manufacturer in the world, and compete with its competitors.
2.2. Auditor Opinions
The auditors opinion that was given for the financial statements and the internal
financial controls of Intel was presented fairly in all aspects in 2009 and 2010. The information
from financial statements were conformed to U.S. generally accounting principles.
2.3. The Management Discussion and Analysis (MD&A)
The Management Discussion and Analysis of Intel provides most of the information that
the analysts expect to get from the MD&A. The report includes overview, strategy, critical
accounting estimates, results of operations, business outlook, liquidity and capital resources,
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fair value of financial instruments, and contractual obligations and off-Balance-Sheet
arrangements. With all detailed information provided in MD&A, the analysts know current
situation of the company and be able to predict the future aspects of the company.
Overview: Firstly, they are the overall analysis of financial and other highlights affecting
the company.
Strategy: the company strategy is also explained about the major markets including
energy efficient performance, connectivity, and security.
Critical accounting estimates: It is important to understanding the assumptions and
judgments incorporated in our reported financial results and forecasts.
Results of operations: They were compared between year 2010 to 2009 and 2009 to
2008. Business outlook is another discussion.
Liquidity and capital resources: It is an analysis of changes the balance sheets and cash
flows, and discussion of the financial condition and potential sources of liquidity.
Fair value of financial instruments: It is a discussion of the methodologies used in the
valuation of our financial instruments.
Contractual obligations and off-Balance-Sheet Arrangements: The Intel goal is to be the
preeminent computing solutions company that powers the worldwide digital economy. Intel
entered to new business with similar type of business like semi- conductor chip. To achieve this
goal is hard since there are many innovative companies in the semiconductor market. Intel
plans to acquire McAfee, and other innovative companies. This will help the company remain
innovative and stay on top of its competitors.

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PART 3: BALANCE SHEET
The main analysis on balance sheets consists of assets, liabilities, equities, and
commitments and contingencies plans. Not all accounts in balance sheet were analyzed. Only
significant account were selected to analyze in this report.
3.1 Assets
Intels current assets mainly consist of current assets and long-term liabilities. Exhibit
3.1, and 3.2 illustrate the details and changes in assets for a two year period. The amount of
both assets are about $63,186 million in 2010, each of current and long-term asset is 50% of
total assets.
The assets consist of cash and cash equivalents, short-term investments, trading assets,
accounts receivable, inventories, deferred tax assets, and other current assets. Long-term
assets are comprised property, plant and equipment, marketable equity securities, other longterm investments, goodwill, and other long-term assets.
The significant accounts are short-term investment in current assets and property, plant
and equipment in long-term assets. Those two accounts have a significant effects to a changes
in the Intel balance sheet.
Intel used fair value method to value the assets. The other information we can learn
from the notes is inventory process from raw materials to work in process and from work in
process to finished goods. This information shows how much money sit in each production
process. If the company have more raw materials than final products, the company have
chances to have products shortage.

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Exhibit 3.1: Vertical Ratio Analysis

Assets

Intel Corporation
Consolidated Balance Sheets
December 25, 2010 and December 26, 2009
(In Millions, Except Par Value) 2010 2009
2010
2009

2010

2009

Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 5,498 $ 3,987
8.7%
7.5%
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,294
. . . . . . . . . . . .5,285
. . . . . . . . . . 17.9%
. . . . . . . . . 10.0%
..
Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,093
. . . . . . . . . . 4,648
. . . . . . . . . . . .8.1%
. . . . . . . . .8.8%
Accounts receivable, net of allowance for
doubtful accounts of $28 ($19 in 2009) . . . . . . . . . .
2,867
2,273
4.5%
4.3%
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,757
. . . . . . . . . .2,935
. . . . . . . . . . . 5.9%
. . . . . . . . . 5.5%
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,488
. . . . . . . . . .1,216
. . . . . . . . . . . 2.4%
. . . . . . . . . 2.3%
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,614
. . . . . . . . . . . 813
. . . . . . . . . . 2.6%
. . . . . . . . . 1.5%
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,611
. . . . . . . . . . 21,157
. . . . . . . . . . . .50.0%
. . . . . . . . ..39.8%
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . 17,899
. . . . . . . . . . 17,225
. . . . . . . . . . . .28.3%
. . . . . . . . .32.4%
.
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,008
. . . . . . . . . . . .773
. . . . . . . . . .1.6%
. . . . . . . . 1.5%
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,026
. . . . . . . . . .4,179
. . . . . . . . . . . 4.8%
. . . . . . . . . 7.9%
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4,531
. . . . . . . . . .4,421
. . . . . . . . . . . 7.2%
. . . . . . 8.3%
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,111
. . . . . . . . . . 5,340
. . . . . . . . . . . .8.1%
. . . . . . . 10.1%
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $. . . 63,186
. . . . . . . .$. . 53,095
. . . . . . . . . . .100.0%
. . . . . . . 100.0%
Liabilities and stockholders equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
. . . . . . . . .172
. . . . . . . . . .0.1%
. . . . . . . . 0.3%
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,290
. . . . . . . . . . 1,883
. . . . . . . . . . . .3.6%
. . . . . . . . 3.5%
Accrued compensation and benefits . . . . . . . . . . . . . . . . . .2,888
. . . . . . . . . .2,448
. . . . . . . . . . . .4.6%
. . . . . . . . 4.6%
Accrued advertising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,007
. . . . . . . . . . . 773
. . . . . . . . . . 1.6%
. . . . . . . . . 1.5%
Deferred income on shipments to distributors . . . . . . . . . . .622
. . . . . . . . . .593
. . . . . . . . . .1.0%
. . . . . . . . 1.1%
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,482
. . . . . . . . . .1,722
. . . . . . . . . . . 3.9%
. . . . . . . . 3.2%
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .$. . . .9,327
. . . . . . $. . . .7,591
. . . . . . . . . . 14.8%
. . . . . . . . . 14.3%
.
Long-term income taxes payable . . . . . . . . . . . . . . . . . . . . . . 190
. . . . . . . . . . 193
. . . . . . . . . . 0.3%
. . . . . . . . . 0.4%
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,077
. . . . . . . . . . 2,049
. . . . . . . . . . . .3.3%
. . . . . . . . .3.9%
Long-term deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . 926
. . . . . . . . . . 555
. . . . . . . . . . 1.5%
. . . . . . . . . 1.0%
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236
. . . . . . . . . . 1,003
. . . . . . . . . . . .2.0%
. . . . . . . . . 1.9%
Commitments and contingencies (Notes 23 and 29)
Stockholders equity:
Preferred stock, $0.001 par value, 50 shares
authorized; none issued . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value, 10,000 shares
authorized; 5,581 issued and 5,511 outstanding
(5,523 issued and outstanding in 2009) and capital
16,178
14,993
25.6%
28.2%
Accumulated other comprehensive income (loss). . . . . . . . 333
. . . . . . . . . . 393
. . . . . . . . . . 0.5%
. . . . . . . . . .0.7%
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32,919
. . . . . . . . . .26,318
. . . . . . . . . . . 52.1%
. . . . . . . . . 49.6%
..
Total stockholders equity . . . . . . . . . . . . . . . . . . . . . . .$. . .49,430
.......$
. . .41,704
. . . . . . . . . . . 78.2%
. . . . . . . . . 78.5%
..
Total liabilities and stockholders equity . . . . . . . . . . $
. . . 63,186
. . . . . . . .$. . 53,095
. . . . . . . . . . .100.0%
. . . . . . . . .100.0%
...

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Exhibit 3.2: Horizontal Ratio Analysis

Assets

Intel Corporation
Consolidated Balance Sheets
December 25, 2010 and December 26, 2009
(In Millions, Except Par Value) 2010 2009
2010

2009

Growth

Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 5,498 $ 3,987
37.9%
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .11,294
. . . . . . . . . . .5,285
. . . . . . . . . 113.7%
............
Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,093
. . . . . . . . . . 4,648
. . . . . . . . . . . .9.6%
.........
Accounts receivable, net of allowance for
doubtful accounts of $28 ($19 in 2009) . . . . . . . . . .
2,867
2,273
26.1%
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,757
. . . . . . . . . .2,935
. . . . . . . . . . 28.0%
..........
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,488
. . . . . . . . . .1,216
. . . . . . . . . . 22.4%
..........
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,614
. . . . . . . . . . . 813
. . . . . . . . . 98.5%
..........
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,611
. . . . . . . . . . 21,157
. . . . . . . . . . . .49.4%
. . . . . . . . ..
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . 17,899
. . . . . . . . . . 17,225
. . . . . . . . . . . . .3.9%
.........
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,008
. . . . . . . . . . . .773
. . . . . . . . .30.4%
.........
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,026
. . . . . . . . . .4,179
. . . . . . . . . -27.6%
...........
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4,531
. . . . . . . . . .4,421
. . . . . . . . . . . 2.5%
......
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,111
. . . . . . . . . . 5,340
. . . . . . . . . . .-4.3%
........
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $. . . 63,186
. . . . . . . .$. . 53,095
. . . . . . . . . . . .19.0%
. . . . . .
Liabilities and stockholders equity
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
. . . . . . . . .172
. . . . . . . . -77.9%
..........
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,290
. . . . . . . . . . 1,883
. . . . . . . . . . .21.6%
.........
Accrued compensation and benefits . . . . . . . . . . . . . . . . . .2,888
. . . . . . . . . .2,448
. . . . . . . . . . .18.0%
.........
Accrued advertising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,007
. . . . . . . . . . . 773
. . . . . . . . . 30.3%
..........
Deferred income on shipments to distributors . . . . . . . . . . .622
. . . . . . . . . .593
. . . . . . . . . .4.9%
........
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,482
. . . . . . . . . .1,722
. . . . . . . . . . 44.1%
.........
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .$. . . .9,327
. . . . . . $. . . .7,591
. . . . . . . . . . 22.9%
..........
Long-term income taxes payable . . . . . . . . . . . . . . . . . . . . . . 190
. . . . . . . . . . 193
. . . . . . . . . .-1.6%
.........
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,077
. . . . . . . . . . 2,049
. . . . . . . . . . . .1.4%
.........
Long-term deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . 926
. . . . . . . . . . 555
. . . . . . . . . 66.8%
..........
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236
. . . . . . . . . . 1,003
. . . . . . . . . . .23.2%
..........
Commitments and contingencies (Notes 23 and 29)
Stockholders equity:
Preferred stock, $0.001 par value, 50 shares
authorized; none issued . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value, 10,000 shares
authorized; 5,581 issued and 5,511 outstanding
(5,523 issued and outstanding in 2009) and capital
16,178
14,993
7.9%
Accumulated other comprehensive income (loss). . . . . . . . 333
. . . . . . . . . . 393
. . . . . . . . .-15.3%
...........
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32,919
. . . . . . . . . .26,318
. . . . . . . . . . . 25.1%
...........
Total stockholders equity . . . . . . . . . . . . . . . . . . . . . . .$. . .49,430
.......$
. . .41,704
. . . . . . . . . . . 18.5%
...........
Total liabilities and stockholders equity . . . . . . . . . . $
. . . 63,186
. . . . . . . .$. . 53,095
. . . . . . . . . . . .19.0%
...........

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There have not been significant changes in assets structure. The total assets have
increased about 19% from 2009 to 2010. The short-term investment is 17.9% of total assets in
2010 and has increased by 113.7%. Compared to long-term investment, Intel reduced its
investment in other long-term investments by 27.6%, however, marketable equity securities
increased by 30.4%. The growth of property, plant and equipment increased about 4%.
However, they covered up to 28% in 2010 and 32% in 2009 of total assets. Some of borrowings
were invested in properties because the company was expanding its business.
3.1.1. Account Receivable and Allowance for Doubtful Accounts
Allowance for doubtful account is the outstanding accounts receivable the company
does not expect to collect in the account period. Exhibit 3.3 illustrates the percentage of
accounts receivable. The allowance account for Intel represents approximately 1% of total
customers receivable in both years, so the company expects to collect its receivable 99% during
the accounting period.
Exhibit 3.3: Percentage of Receivable
2010 (In millions $)
Allowance for doubtful accounts

28

Account receivable + Allowance

2,867+28

Percentage of receivables

0.97%

2009 (In millions $)

19
2,273 + 19
0.83%

Exhibit 3.4 illustrates the summary of net sales and accounts receivable, which have
increased by 24.2% and 26.1% respectively. The allowance for doubtful account increased by
47.4%. Sales, accounts receivable, and the allowance for doubtful accounts have all increased in

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the same directions. The net sales have grown relatively to the increase in account receivable.
This relationship is positive because the increase in accounts receivable was due to an increase
in sales.
Exhibit 3.4: Growth Rates of Net Sales, Account Receivable, and Allowance for Doubtful
Accounts
2010 (In millions $)

2009 (In millions $)

Growth rate (%)

Net sales

43,623

35,127

24.2

Account receivable

2,867

2,273

26.1

Allowance for doubtful accounts

28

19

47.4

3.3 Inventories
Inventories are comprised 5.9% and 5.5% of total assets, respectively, in 2010 and 2009
(See Exhibit 3.1). Inventories have significant increased by 28% from 2009 to 2010 (See Exhibit
3.2). According to the annual report of Intel, inventories increased due to higher
microprocessor inventory. Intel used first-in-first-out (FIFO) accounting method, which is the
last purchases made during the year have been charged to expenses, to compute inventory cost
on a currently adjusted standard basis. Intel year-end inventories are as follows:
Exhibit 3.5: Year-End Inventories

(In Millions)
Raw materials
Work in process
Finished goods
Total inventories

2010
Amount in dollars
% of total inventory
471
13%
1,887
50%
1,399
37%
3,757
100%

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2009
Amount in dollars
437
1,469
1,029
2,935

% of total inventory
15%
50%
35%
100%

Sonenaly Hemsouvanh
Exhibit 3.5 illustrates proportion of inventory types such as raw materials, work in
process, and finish goods. On average, Intel managed its inventories levels the same amount for
two years. For instance, in 2010, the inventories were comprised of 13% of raw materials.
Lower cost of raw material can save inventory costs. On the other hand, 50% of inventories are
work in process and 37% of them are finished goods. Those two inventories can be sold in the
near future which will increase sales and cost of sales.
3.4. Deferred Taxes
Deferred taxes are listed under current deferred tax assets, non-current deferred tax
assets and non-current deferred tax liabilities. Under current deferred taxes assets, share-based
compensation, which is $782 million in 2010 and $774 million in 2009, are the most significant
components of deferred taxes. Moreover, accrued compensation and other benefits are the
major parts of current deferred assets.
3.5. Liabilities
The typical liabilities of Intel include short-term debt, accounts payable, accrued
compensation and benefits, accrued advertising, deferred income, long-term income tax
payable, long-term debt, and long-term deferred tax liabilities. There is not a significant liability
account in the balance sheet of Intel. The company has less long-term debts and more of shortterm debts.
The current liabilities increased 23% in 2010, compared to 2009 mainly due to the
increase in other accrued liabilities, accrued advertising, and accounts payable. Long-term
liabilities are comprised of long-term debt of 3% and other long-term liabilities of 2% of total

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liabilities and shareholders equity. Intel used its short-term debts and long-term liabilities to
invest mainly in property, plan, and equipment, which is 28% of total assets in 2010.
3.6. Shareholders Equities
Preferred stock, common stock, accumulated other comprehensive income and retained
earnings are equity accounts included in the balance sheet of Intel. Retained earnings are the
significant account under shareholders equity, which consists of 52% and 50% of total liabilities
and equity accounts in 2010 and 2009, respectively. Retained earnings have increased 25% due
to the increase in sales. More details in analysis of shareholders equity can be found in
statement of equity. The second biggest component is common stock, which is 26% in 2010 and
28% in 2009.
3.7. Commitments and Contingencies
Note 23 is an Intel commitments, which can be found in the Intel annual report. The
capital equipment that Intel committed for operating leases that expire at various dates
through 2028. The note also committed for construction or purchase of property, plant and
equipment totaled $4.6 billion as of December 25, 2010. Other purchase obligations and
commitments totaled approximately $600 million as of December 25, 2010 which include
licenses, agreements to purchase raw materials or other goods, and payments due under noncontingent funding obligations.
The contingency plans of Intel are legal proceedings. According to Note 29, the
contingency plans, Intel believes that competing lawfully in marketing, business, intellectual
property, and other challenged practices benefit its customers and stockholders, and continue
to conduct a vigorous defense.
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PART 4: INCOME STATEMENT
In this part, the analysis focuses on net revenues, cost of sales, gross margin, operating
expenses, and net income. Exhibit 4.1 illustrates the income statement of Intel from 2008 to
2010.
Exhibit 4.1: Consolidate Statement of Income
(In Millions, Except Per Share Amounts)
Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general and administrative
Restructuring and asset impairment charges
Amortization of acquisition-related intangibles
Operating expenses
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

2010
43,623
15,132
28,491
6,576
6,309
18
12,903
15,588
117
231
109
16,045
4,581
11,464

2009
35,127
15,566
19,561
5,653
7,931
231
35
13,850
5,711
(147)
(23)
163
5,704
1,335
4,369

2008
37,586
16,742
20,844
5,722
5,452
710
6
11,890
8,954
(1,380)
(376)
488
7,686
2,394
5,292

Exhibit 4.2: Consolidated Statement of Income Data as Percentage of Net Income

(In Millions, Except Per Share Amounts)
Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general and administrative
Restructuring and asset impairment charges
Amortization of acquisition-related intangibles
Operating expenses
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

2010
100.0%
34.7%
65.3%
15.1%
14.5%
0.0%
0.0%
29.6%
35.7%
0.3%
0.5%
0.2%
36.8%
10.5%
26.3%

Page 11 of 37

2009
100.0%
44.3%
55.7%
16.1%
22.6%
0.7%
0.1%
39.4%
16.3%
-0.4%
-0.1%
0.5%
16.2%
3.8%
12.4%

2008
100.0%
44.5%
55.5%
15.2%
14.5%
1.9%
0.0%
31.6%
23.8%
-3.7%
-1.0%
1.3%
20.4%
6.4%
14.1%

Sonenaly Hemsouvanh
Exhibit 4.3: Consolidated Statement of Income data as a Growth
(In Millions, Except Per Share Amounts)
Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general and administrative
Restructuring and asset impairment charges
Amortization of acquisition-related intangibles
Operating expenses
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

2010
24.2%
-2.8%
45.7%
16.3%
-20.5%
-100.0%
-48.6%
-6.8%
172.9%
-179.6%
-1104.3%
-33.1%
181.3%
243.1%
162.4%

2009
-6.5%
-7.0%
-6.2%
-1.2%
45.5%
-67.5%
483.3%
16.5%
-36.2%
-89.3%
-93.9%
-66.6%
-25.8%
-44.2%
-17.4%

4.1. Net Revenue

Exhibit 4.3 illustrates growth rates in each account in the income statement. Gross
margin for 2010 increased by 45.7%, compared to 2009. This increase is due to substantially
higher revenue and increase in sales. However, the gross margin in 2009 decreased by 6.2%,
compared to 2008. The decrease is due to lower revenue and decrease in sales.
Changes in sales affect the cost of goods sold in the income statement. When the sales
increased, the cost of goods sold changes in the same direction of sales. Intel had a much better
sales year in 2010 than in 2009. The net revenue for 2010 increased $8.5 billion, or 24.2%,
compared to 2009. It is important to determine whether the change is a result of price or
volume or combination. According to the MD&A, the increase in net sales was primarily due to
higher microprocessor and chipset unit sales. However, in 2010, contributing to revenue of
$43.6 billion, up 24% compared to 2009 is not the real increase because the growth included an
inflation. The real growth has to calculate to the adjustment with Consumer Price Index (CPI).
Page 12 of 37

Sonenaly Hemsouvanh
CPI is 218.056, 214.537, and 215.303, respectively, in 2010, 2009, and 2008
(www.usinlationcalculator.com). The adjustment of the sales figure with the CPI is calculated as
follows:
Current Year CPI/Prior Year CPI = 218.056/214.537= 1.016 (1.6% inflation)
Changes in sales revenue from 2009 to 2010 (See Exhibit 9) is 24%
Year 2009 Adjusted for CPI: $35,127 million x1.016= $35,689
Sales Revenue (in million):

2010
$43,623

2009 (Adjusted)
$35,689

$Changes

%Change

$7,943

22.23%

Therefore, the real increase in sales in 2010 was 22.23%. The statement reported by the
CEO was not entire true to state that the sales increased by 24% in 2010 compared to 2009. The
growth contains inflation rate of 1.6% (See the table below).
(In million dollars)
Sales Revenue
CPI
Inflation : Current Year CPI/Prior Year CPI
Inflation
Changes in Sales Revenue
Prior Year Sales Revenue Adjusted for CPI
Adjusted Changes in Sales Revenue

Page 13 of 37

2010
43,623
218.056
1.016
1.64%
24.19%
43,623
22.18%

2009
35,127
214.537
0.996
-0.36%
-6.54%
35,703
-6.21%

2008
37,586
215.303

37,452

Sonenaly Hemsouvanh
4.2. Cost of Sales and Gross Margin
Intel has improved control of cost of sales each year. This has resulted in a more
favorable gross profit. The cost of sales of Intel decreased by 2.8% from 2009 to 2010. This is
due to the lower fixed cost and higher selling price. Cost of sales and gross profit also are
affected by choice of inventory method. Intel uses FIFO inventory method, which is lower cost
of sales during the period of inflation in 2010. As a result, gross margin resulted in higher
percentage of sales and higher growth rates, which are 65% and 46% in 2010 and 2009,
respectively (See Exhibit 4.2).
The gross margin for 2010 increased by 46%, compared to 2009. The increase was
primarily due to significantly higher revenue. The overall gross margin for 2009 decreased
slightly by 6%, compared to 2008. The decrease was due to lower sales revenue. This could be a
result of a decrease in prices or an increase in cost of sales. According to the MD&A,
approximately $830 million of higher factory underutilization charges, and approximately $330
million of higher start-up costs. As a result, the gross margin was slightly dropped in 2009.
Intel had a significant growth in gross margin in 2010 due to the decrease in cost of sales
and the increase in sales volumes. The relationship between cost of sales and gross margin is
important because if the company can keep cost of sales low, the gross margin will be larger.
4.3. Operating Expense and Operating Income
In 2010, operating expense decreased by 6.8%. The main factors that affect the
decrease in operating expense consist of the reduction of marketing, general and
administrative costs by 21%, which comprises of 16% of total sales. This cutting cost has a
Page 14 of 37

Sonenaly Hemsouvanh
significant effect to the operating income because it comprises of 23% of total net revenue. The
decrease in restructuring and asset impairment charges, and amortization of acquisition by
100%. Additionally, the amortization of acquisition of related intangibles were also reduced by
49%. Moreover, research and development expense has increased from 2009 to 2010 by 16%
because Intel aims to develop new products and production processes, and improve its existing
products. Therefore, the decrease in operating expense resulted an increase in operating
income by 173% in 2010.
On the other hand, operating expense and operating income changed in the different
direction from 2010. The main reason for this increase was the increase in marketing, general
and administrative expenses up to 46%, which comprises of 15% of total sales, and a huge
expense in amortization. Even though, there were decreases in restructuring and asset
impairment charges, but it cannot offset with the large expenses of those two items. As a
result, with the increase in operating expense of 17%, the operating income decreased by 36%.
Management should focus on reducing the marketing, general and administrative costs in the
future.
4.4. Net Income
The net income for 2010 increased by 162%, compared to 2009. This increase is due to
the huge reduction of gain on equity method investment and gain on other equity investments,
during three years. Additionally, interest income declined significantly as a result of lower
interest rates. In 2009, the operating income declined significantly, resulting in a drop in net
income.

Page 15 of 37

Sonenaly Hemsouvanh
Net income has increased less than operating income in 2010. This could be a result of
decreasing in interest income of 33%, which is due to the declining of short-term debt.
Moreover, the income taxes which comprise of 11% of total net revenue increased by 243%.
The MD&A discussed about the provision for taxes and effective tax rate. The following table
shows details of the income taxes and taxes rate:
(Dollars in Millions)

2010

2009

2008

Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,045

5,704

7,686

Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,581

1,335

2,394

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.6%

23.4%

31.1%

Intels effective rate is high in 2010, compared to 2009. This higher rate resulted from
higher profits. The company generated higher profits from lower tax jurisdictions in 2009
compared to 2008.
4.5. Statement of Shareholders Equity
The amount in dollars of common stock has increased during three years mainly due to
proceeds from sales of common stock through employees. Additionally, the increases resulted
from issuance of convertible debt and share-based compensation. However, repurchase
common stock made the value go down which offset with the positive amounts. The following
chart illustrates the common stock for three years.

Page 16 of 37

Sonenaly Hemsouvanh

Common Stock (In million dollars)

18,000

MILLION DOLARS

16,178
16,000
14,993

14,000

13,402

12,000
2008

2009

2010

Accumulated other comprehensive income was not the same amounts each year. It has
decreased from is $261 million in 2007 to negative amount of $393 million in 2008, or
decreased by 166.9%. The figure has increased dramatically by 100% in 2009. The MD&A
discussed that the changes in accumulated other comprehensive income are due to unrealized
gain or losses which are available for sales of investment.

Accumulated Other Comprehensive Income or Losses

2010

333

2009

2008

-393

-500

-400

393

-300

-200

-100

100

Million dollars

Page 17 of 37

200

300

400

500

Sonenaly Hemsouvanh
The overall retained earnings has increased in 2010 and decreased in 2009. This means
that the decrease is due to the increase in net income. The decrease is due to repurchase of
common stock and cash dividends declared. For instance, in 2010, the retain earning increased
by 25% mainly due to the large amount of net income. $1.4 billion of repurchase common stock
and $3.5 billion of cash dividends were declared to be offset with the net income, but the
retained earnings were still high. The graph below illustrates the retain earning from 2008 to
2010.

Retain Earnings
32,919

35,000

Million dollars

30,000

26,537

26,318

2008

2009

25,000
20,000
15,000
10,000
5,000
-

Page 18 of 37

2010

Sonenaly Hemsouvanh
PART 4 STATEMENT OF CASH FLOWS
The statement of cash flows indicates cash inflows and outflows from operating
activities, investing activities, and financing activities. The following analysis will focus on these
three areas.
4.1. Cash Flow from Operating Activities
Intel has significantly generated an increasing dollar amount of cash from operations
over a period of time mainly due to changes in account receivable, inventories, account
payable, and other assets and liabilities. Exhibit 4.1and Exhibit 4.2 illustrates the changes in
cash flows from operating activities.
Accounts Receivable: In 2010, the 49 % increase in cash provided by operating activities was
primarily caused by the decrease in account receivable. Overall, accounts receivable increased
for three years. The increase was because more sales revenue was recognized in net sales than
collections in cash. In 2010, accounts receivable has slightly increased by 9% due to an increase
in sales. However, there was a significant drop in 2009, compared to 2008 because of the
decrease in sales and decline in non-cash items. In 2008, the accounts receivable decreased due
to more collections in receivable than recognized in sales. As a result, the growth in operating
cash flow had a direct effect on the increase in accounts receivable.

Page 19 of 37

Sonenaly Hemsouvanh
Exhibit 4.1 Changes in Consolidated Statement of Cash Flow
Horizontal Analysis
Intel Corporation
Consolidated Statement of Cash Flows
Three Years Ended December 25, 2010
(Growth Rate)
Cash and cash equivalents, beginning of year
Cash flows provided by (used for) operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Share-based compensation
Restructuring, asset impairment, and net loss on retirement of assets
Excess tax benefit from share-based payment arrangements
Amortization of intangibles
(Gains) losses on equity method investments, net
(Gains) losses on other equity investments, net
(Gains) losses on divestitures
Deferred taxes
Changes in assets and liabilities:
Trading assets
Accounts receivable
Inventories
Accounts payable
Accrued compensation and benefits
Income taxes payable and receivable
Other assets and liabilities
Total adjustments
Net cash provided by operating activities
Cash flows provided by (used for) investing activities:
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Purchases of available-for-sale investments
Maturities and sales of available-for-sale investments
Purchases of trading assets
Maturities and sales of trading assets
Origination of loans receivable
Investments in non-marketable equity investments
Return of equity method investments
Proceeds from divestitures
Other investing
Net cash used for investing activities
Cash flows provided by (used for) financing activities:
Increase (decrease) in short-term debt, net
Proceeds from government grants
Excess tax benefit from share-based payment arrangements
Issuance of long-term debt
Repayment of debt
Proceeds from sales of shares through employee equity incentive plans
Repurchase of common stock
Payment of dividends to stockholders
Net cash used for financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, end of year

Page 20 of 37

2010
19%

2009
-54%

162%

-17%

-7%
3%
-82%
622%
-22%
-180%
-1104%
-117%

9%
4%
-54%
-70%
20%
-89%
-94%
-100%
-134%

-100%
9%
-201%
-180%
-35%
-52%
-338%
-23%
49%

55%
-306%
-302%
-1845%
-143%
-113%
86%
21%
2%

15%
-74%
104%
69%
114%
248%
45%
57%
-56%
145%
32%

-13%
5231%
34%
-3%
56%
44%
-85%
42%
-100%
162%
36%

-126%
622%
-100%
47%
-1%
13%
81%
137%
38%

118%
-100%
-70%
-64%
-76%
0%
-72%
-116%
19%

Sonenaly Hemsouvanh
Exhibit 4.2: Consolidated Statement of Cash Flows from Operating Activities
(In Millions)
2010
Cash and cash equivalents, beginning of year
$ 3,987
Cash flows provided by (used for) operating activities:
Net income
11,464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
4,398
Share-based compensation
917
Restructuring, asset impairment, and net loss on retirement of assets
67
Excess tax benefit from share-based payment arrangements
(65)
Amortization of intangibles
240
(Gains) losses on equity method investments, net
(117)
(Gains) losses on other equity investments, net
(231)
(Gains) losses on divestitures
Deferred taxes
(46)
Changes in assets and liabilities:
Trading assets
Accounts receivable
(584)
Inventories
(806)
Accounts payable
407
Accrued compensation and benefits
161
Income taxes payable and receivable
53
Other assets and liabilities
834
Total adjustments
5,228
Net cash provided by operating activities
16,692

2009
3,350

2008
7,307

4,369

5,292

4,744
889
368
(9)
308
147
23
271

4,360
851
795
(30)
256
1,380
376
(59)
(790)

299
(535)
796
(506)
247
110
(351)
6,801
11,170

193
260
(395)
29
(569)
(834)
(189)
5,634
10,926

Inventories: Inventories are also the main factors that directly affect increase or decrease in
operating cash flows. The increase in inventories is deducted from net sales, which affect the
decrease in cash flows from operating activities. MD&A explained the main increase in
inventories was due to higher microprocessor inventory. Inventories increased significantly in
2010, but declined in 2009, which means the company was expanding.
Accounts Payable: Accounts payable decreased in 2010, which was added back to net sales.
The decline in account payable had a positive affect to increase cash flows from operating

Page 21 of 37

Sonenaly Hemsouvanh
activities. However, in 2009, there is a great drop in account payable that caused the cash flows
in operating activities to increase.
4.2. Cash Flow from Investing Activities
Exhibit 4.3: Consolidated Statement of Cash Flows from Investing Activities
(In Millions)
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Purchases of available-for-sale investments
Maturities and sales of available-for-sale investments
Purchases of trading assets
Maturities and sales of trading assets
Origination of loans receivable
Investments in non-marketable equity investments
Return of equity method investments
Proceeds from divestitures
Other investing
Net cash used for investing activities

2010
(5,207)
(218)
(17,675)
13,133
(8,944)
8,846
(498)
(393)
199
218
(10,539)

2009
(4,515)
(853)
(8,655)
7,756
(4,186)
2,543
(343)
(250)
449
89
(7,965)

2008
(5,197)
(16)
(6,479)
7,993
(2,676)
1,766
(1,691)
316
85
34
(5,865)

The Exhibit 4.1 and 4.3 illustrate the changes in cash flows from investing activities. Intel
generated negative cash flows from investing activities. The increase in investing was 32% in
2010 compared to 2009, and 36% in 2009 compared to 2008. The major cash outflows from
investing activities were from investments in property, plant, and equipment, purchase of
available-for-sale investments, purchase of trading assets. On the other hand the cash inflows
were mainly from sales of available-for-sale investments and sales trading assets.
Additional Property, Plant, and Assets: Cash outflows from investing activities varied during
three years. Property, plants and assets increased 15% in 2010, compared to 2009, but
decreased by 13% in 2009, compared to 2008. The main reason for the increase in 2010 is due

Page 22 of 37

Sonenaly Hemsouvanh
to the company expanding. The company used short-term and long-term debts to invest in the
capital assets.
Purchases of Available-for-Sale Investments: In 2010, the increase in cash used for investing
activities was primarily due to an increase in net purchases of available-for-sale investments,
compared to 2009. Purchases of available-for-sale investments consist of 46% of total cash
outflows in 2010 and 36% in 2009. Changes in fair market value caused decrease and increase
in available-for-sale investments. Gain or loss depends on fair value at the date of purchase and
sell.
Maturities and Sales of Available-for-Sale Investments: They are the significant factors of cash
inflows. As mentioned above, Intel invested heavily in available-for-sale investment in order to
gain some profits. As a result, the source of cash inflows was mainly from the sales of availablefor-sale investments.
Purchases of Trading Assets: Trading assets are securities the company held for the purpose of
reselling for a profit. Intel purchased and sold its trading assets at the fair value. Purchases of
trading assets caused the cash outflows from investing activities increased. Purchase of trading
assets are the second biggest cash outflows, which comprise of 23% of total cash outflows. The
purchase of trading assets has increased substantially during the accounting periods. It
increased significantly by 114% and 56% in 2010 and 2009, respectively. This increase was due
to Intel expected for gains on sales of trading assets.

Page 23 of 37

Sonenaly Hemsouvanh
Maturities and Sales of trading Assets: Another main source of cash inflows from investing
activities is sales of trading assets, which is 22% of total cash outflows. This increase was
primarily due to the increase in investment in trading assets.
4.3. Cash Flows from Financing Activities
The main cash flows from financing activities consist of repurchases of common stock,
payment of dividends to stockholders, issuance and repayment of long-term debt, and
proceeds from the sale of shares through employee equity incentive plans.
Exhibit 4.4: Consolidated Statement of Cash Flows from Financing Activities
(In Millions)
2010
Cash flows provided by (used for) financing activities:
Increase (decrease) in short-term debt, net
23
Proceeds from government grants
79
Excess tax benefit from share-based payment arrangements
65
Issuance of long-term debt
Repayment of debt
(157)
Proceeds from sales of shares through employee equity incentive587
plans
Repurchase of common stock
(1,736)
Payment of dividends to stockholders
(3,503)
Net cash used for financing activities
(4,642)

2009

2008

(87)
9
1,980
400
(1,762)
(3,108)
(2,568)

(40)
182
30
1,105
(7,195)
(3,100)
(9,018)

Repurchase of Common Stock: Cash outflow from financing activities was repurchase $1.7
billion of its own common stock, which comprises of 5% of total cash outflows in 2010. It has
decreased each year resulting decrease in cash used. As a result, the cash outflows from
financing activities decreased were partially due to the increase in repurchase of common
stock.
Payment of Dividends: Payment of dividends to stockholders has slightly increased each year
due to an increase in cash dividends per common share. The company paid cash dividends $3.5

Page 24 of 37

Sonenaly Hemsouvanh
billion in 2010, and $3.1 billion in 2009. The payment of dividends is the significant factor that
caused the net cash used for financing activities increased.
Exhibit 4.5: Summary Analysis Statement of Cash Flows
2010
Inflows (dollars in thousands)
Operation
Maturities and sales of available-for-sale investments
Maturities and sales of trading assets
Return of equity method investments
Proceeds from divestitures
Other investing
Increase (decrease) in short-term debt, net
Proceeds from government grants
Excess tax benefit from share-based payment arrangements
Issuance of long-term debt
Proceeds from sales of shares through employee equity incentive
plans

16,692
13,133
8,846
199
218
23
79
65
-

2009

41.9
33.0
22.2
0.5
0.5
0.1
0.2
0.2
-

11,170
7,756
2,543
449
89
9
1,980

2008

45.8
31.8
10.4
1.8
0.4
0.0
8.1

10,926
7,993
1,766
316
85
34
182
30
-

587

1.5

400

1.6

1,105

Total
Outflows (dollars in thousands)
Operation
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Purchases of available-for-sale investments
Purchases of trading assets
Origination of loans receivable
Investments in non-marketable equity investments
Increase (decrease) in short-term debt, net
Repayment of debt
Repurchase of common stock
Payment of dividends to stockholders

39,842

100.0

24,396

100.0

22,437

5,207
218
17,675
8,944
498
393
157
1,736
3,503

13.6
0.6
46.1
23.3
1.3
1.0
0.4
4.5
9.1

4,515
853
8,655
4,186
343
250
87
1,762
3,108

19.0
3.6
36.4
17.6
1.4
1.1
0.4
7.4
13.1

5,197
16
6,479
2,676
1,691
40
7,195
3,100

Total
Change in cash and cash equivalents

38,331
1,511

100.0

23,759
637

Page 25 of 37

100.0

26,394
(3,957)

Sonenaly Hemsouvanh
Exhibit 4.6: Summary Analysis Statement of Cash Flows
2010
Inflows (dollars in thousands)
Operation
Maturities and sales of available-for-sale investments
Maturities and sales of trading assets
Return of equity method investments
Proceeds from divestitures
Other investing
Increase (decrease) in short-term debt, net
Proceeds from government grants
Excess tax benefit from share-based payment arrangements
Issuance of long-term debt
Proceeds from sales of shares through employee equity incentive
plans

16,692
13,133
8,846
199
218
23
79
65
-

622.2
(100.0)

9
1,980

587

46.8

Total
Outflows (dollars in thousands)
Operation
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Purchases of available-for-sale investments
Purchases of trading assets
Origination of loans receivable
Investments in non-marketable equity investments
Increase (decrease) in short-term debt, net
Repayment of debt
Repurchase of common stock
Payment of dividends to stockholders

39,842

63.3

Total
Change in cash and cash equivalents

38,331
1,511

5,207
218
17,675
8,944
498
393
157
1,736
3,503

49.4
69.3
247.9
(55.7)

2009

144.9

2008

11,170
7,756
2,543
449
89

2.2
(3.0)
44.0
42.1
(100.0)
161.8

10,926
7,993
1,766
316
85
34

(100.0)
(70.0)

182
30
-

400

(63.8)

1,105

24,396

8.7

22,437

(1.5)
12.7

4,515
853
8,655
4,186
343
250
87
1,762
3,108

61.3
137.2

23,759
637

15.3
(74.4)
104.2
113.7
45.2
57.2
(100.0)

(75.5)
0.3

5,197
16
6,479
2,676
1,691
40
7,195
3,100

(10.0)
(116.1)

26,394
(3,957)

(13.1)
5,231.3
33.6
56.4
(85.2)
117.5

Intel has healthy statement of cash flow because it has large net cash provided by
operating activities to cover its cash used from investing and financing activities. Intel generates
enough cash to pay its liabilities and also generating a positive cash flow from operations.

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PART 5: FINANCIAL RATIOS
5.1 Liquidity Ratios
Short-Term Liquidity
Short-term liquidity is an ability of the company to pay short-term obligations and also
its capability to sell assets quickly to earn cash. Exhibit 5.1 illustrates liquidity ratios and some of
liquidity ratios compared to industry average numbers.
The short-term liquidity of Intel has improved over a two year period. The current, quick, and
cash flow liquidity ratios were high and increasing over two years. Moreover, the current and
quick ratios were above the industry average.
The current ratio determines the ability of the company to pay its debts due in the
coming year. It is calculated by dividing current assets by current liabilities. In 2010, current
assets covers current liabilities 3.39 times, which means that Intel had more dollars to pay its
current obligations in the following year. In this ratio, the higher results is preferable from the
company.
Quick ratio is another ratio of short-term solvency. It indicates the ability of the firm to
pay its own debts with available resources, but excluding inventories. Quick ratio has improved
from 2009 to 2010, and much higher compared to industry average. The quick ratio was 2.99 in
2010, which means that Intel could pay off its current liabilities with $2.99 for every $1 of debt
coming due in 2011.

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Cash flow liquidity ratio is calculated by cash and cash equivalents, marketable equity
securities, and cash from operations divided by current liabilities. Again, this ratio indicates the
ability of the company to pay its current obligations coming due in the next year. The ratio
increased from 2.10 in 2009 to 2.49 in 2010. The company prefers higher result of this ratio.
Exhibit 5.1: Liquidity Ratios
2010
3.39

2009
2.79

Industry
Average
2.07

Times

2.99

2.40

1.24

Times

2.49

2.10

Net account receivable

Average daily sales

Days

24

24

60.0

Days inventory held

Inventory
Average daily cost of sales

Days

91

69

85.5

Days payable outstanding

Account payable
Average daily cost of sales

Days

55

44

Liquidity ratios
Current ratio

Quick ratio

Cash flow liquidity ratio

Current assets
Current liabilities

Unit
measure
Times

Current assets - Inventory

Current liabilities
(Cash and cash equivalents +
marketable equity securities
+ cash from operations)/
Current liabilities

Average collection period

In conclude, the short-term solvency of Intel has improve strongly during two years. The
company had large amount of cash to pay its obligations each year. Intel did not have major
issue with the short-term liquidity in each accounting period.
Liquidity of Current Assets
Average collection period is number of days between the date of sales and the date of cash
received. It is calculated net account receivable divided by average daily sales. Intel had an excellent
collection period compared to industry average. The average accounts receivable collection period was

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stable and low at 24 days, which means the company collated accounts receivable on average in 24
days. Compared to the industry average of 60 days, Intel had better position. The faster the company
collects cash, the better the company can pay its suppliers and debts.
On the other hand, days inventories held indicates the numbers of days that inventories need
to sell. It is calculated by inventory divided by average cost of sales. Days inventories held was
deteriorating because the ratio increased from 69 days to 91 days from 2009 to 2010. In 2010, days
inventories held is longer than industry average by 5.5 days which is worse than other similar firms and
in the year 2009. The increase in days was primarily due to the decrease in cost of sales and increase in
inventories. The lower result is the preferable from the company.
Days payable outstanding determines numbers of days to pay suppliers. Intel has 11 days longer
to pay accounts payable. This increase in days is due to the firm's suppliers gave the company longer
credit sales. This is good for the company to use its cash to invest or spend in other activities.

5.2 Activity Ratios

Activities ratios measure the companys operating efficiency. Exhibit 5.2 illustrates the
calculations of activity ratios and industry average rate.
Accounts receivable turnover is calculated by net sales divided by net accounts
receivable. This turnover measures numbers of times the company collected accounts
receivable during the year. The turnover was stable and high compared to industry average.
This is a good sign for the company because this high turnover mean that the company could
collect its accounts receivable 15 times a year or every 24 days, which is related to the average
collection period analyzed in the previous ratio. Intel had a better position both years
compared to other similar industry, which is 6.10 times a years.
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Accounts payable turnover is the efficiency of the company to pay its suppliers. The low
result is good for the company. The turnover decreased from 2009 to 2010 and it was low for
both years. In 2010, the company could pay its suppliers 6.61 times a year.
Exhibit 5.2: Activity Ratios
Activity ratios
Account receivable turnover

Inventory turnover

Fixed asset turnover

Total asset turnover

Account payable turnover

Unit

2010

Industry
Average
15.45
6.10

2009

Net sales
Net accounts receivable

Times

15.22

Cost of sales
Inventory

Times

4.03

5.30

4.30

Times

2.4

2.0

9.2

Net sales
Total assets

Times

0.7

0.7

1.3

Cost of sales
Accounts payable

Times

6.61

8.27

Net sales
Net property, plant, equipment

However, Intel is not efficient compared to its competitors because there were poor
results of inventory turnover, fixed assets turnover and total asset turnover. Fixed assets
represent an efficiency of the company in controlling its fixed assets. Intel could turned its
capital assets into sales 2.4 times in 2010 and 2 times in 2009. The results of the turnover is
very low or inefficient compared to industry average, which is a 9 times a year. It is appeared
that fixed and total asset turnovers are low for both years due to higher amounts in dollars of
property, plant, and equipment. Referring to the previous analysis, capital assets covered up to
28% of total assets in 2010 and 32% in 2009. Total asset turnover has also been impacted by
the slightly lower inventory turnover.
To conclude the above analysis, Intel is capital intensive because of the low asset
turnover rates. The company has efficient accounts receivable and inventory; however, fixed
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assets and total asset turnover are inefficient compared to its competitors. In order to improve
its net income, the company needs to generate a higher level of sales with proper managing its
capital expenditures. As a result the fixed and total asset turnovers would be higher.
5.3 Leverage Ratios
Capital structure
Debt to Assets: Capital structure were not risky as its competitors because the debt ratio and
long term debt to total capitalization were below industry standard. It measures percentage of
all assets financed by debts. It is calculated by dividing liabilities by total assets. The company
prefers lower results. The debt ratio of Intel was 22% for both years, which was below industry
standard of 51%. In 2010 and 2008, Intel financed 22% of its assets with debts, and 78% of its
assets with equity.
Debt to Equity: Debt equity is calculated by dividing liabilities by total equity. The company
prefers lower results. Intel had high result of debt to equity ratio. This means that the company
were less risky because the company had lower debt compared to industry standard of 1%,
while Intel had 0.28 in 2010 and 0.27 in 2009.
Long-term debt to total capitalization: The lower rate is preferable. This rate is measured the
long-term debt to total capitalization. In both years, Intel had better long-term debt to
capitalization because the rate was 8% for both years, compared to the industry rate of 31%.
This means that Intel did not have as risky capital structure as its competitors.
Times Interest Earned: It measured how many times interest expense is covered by operating
expense as defined by Lynn M. Fraser and Aleen Ormiston. The higher result is preferable. Intel
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had higher result than its competitors. The rate was 143 in 2010, 35 in 2009, and 18 in 2008.
The industry standard was only 4. In 2010, Intel paid interest 143 times.
Exhibit 5.3: Leverage Ratios
Leverage ratios
Debt ratio

Long-term debt to total

capitalization

Debt to equity

Times intereste earned

Cash flow adequacy

Cash interest coverage

Unit
%

Total liabilities
Total assets

2010
21.8%

2009
21.5%

2008

Industry
Average
51.1

Long-term debt (LTD)

LTD + Stockholders' equity

8.2%

8.4%

31.03

Total liabilities
Stockholders' equity

0.28

0.27

1.07

Operating profit
Interest expense

Times

143.01

35.04

18.35

Cash flow from operations

Cappital expense + debt
payments + dividends paid

Times

1.88

1.47

1.32

Times

196.17

77.72

28.30

Cash from operations + interest

paid + taxes paid
Interest paid

5.4 Profitability Ratios

Profitability ratios measure profitability of the company. Exhibit 5.4 illustrates the
profitability and margins ratios.
Profitability Margins
Profitability of Intel is improving during the three year period. In 2010, gross margins,
operating profit margins, and net profit margins have improved due to increase in sales and
better cost control. However, operating profit margin and net profit margin decreased from
2008 to 2009 primarily due to the decrease in sales.
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Gross profit margin is above the industry average for three years. The higher numbers, the
better the company is. In 2010, the gross profit margin is 65%, which means that the gross
profit covers 65% of total net sales after covering costs of sales and other expenses. In overall
Intel generates good result of profit margin for three years, and is better than its competitor.
The reason of higher gross profit margin was due to higher sales volume. This margin was
previously analyzed in analysis of income statement.
Operating profit margin increased in 2010, but declined in 2009. The result of increase is
due to an increase in sales volume. On the other hand, the result of decrease in operating profit
margin is due to the decrease in sales and increase in operating expenses. The industry average
is 3.3% which is low compared to Intels. This is means that Intel generates higher results for
three years compared to its competitors. This topic has already discussed previously in the
common size analysis of balance sheet.
Net profit margin and cash flow margin followed the trend of gross margin and operating
profit margin. The results of three year net profit margin are much higher than the industry
average. Cash flow margin increased each year. In 2010, Intel covered 26% of cash flows from
operating activities of net sales revenues. In the previous discussion on cash flow statement,
Intel has higher cash flows from operating.
Profitability Returns
The return on assets, return on equity and cash return on assets have increased for
three years. Additionally, they are above the industry average.

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Return on assets measures the profitability from total assets. It is calculated by dividing
net earnings by total assets. The return on assets increased from 2009 to 2010, and much
higher compared to industry average. In 2010, the return rate is 18% compared to industry
average of 2.38%. This means that the company has better position than it competitor because
the company earned 18% of profit of total assets.
Return on equity indicates the ability of the company to produce its net earnings from
total equity. It is calculated by dividing net earnings by total equity. Intel has high return on
equity for both year. Moreover, the return on equity is above the industry average. In 2010, the
return rate is 23%, compared to the industry rate of 4.98%. This result indicates that Intel could
generate its earnings 23% of total equity, while the other similar industry generates 4.98%.
Cash return on assets indicates the ability of the firm to generate cash flows from
operating activities from total assets. Cash return on assets of Intel was high or both years and
increased from 2009 to 2010. The increase is primarily due to the decrease in account payable,
other assets, and liabilities. Additionally, the decrease in account receivable and inventories has
direct effect in increasing in cash flow from operating activities. In 2010, the cash return on
assets is 26%, which means that the company generated 26% of net cash flow from operation
of total assets.

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Exhibit 5.4: Profitability Ratios
2010
65.3%

2009
55.7%

2008
55.5%

Industry
Average
36.10%

Operating profit
Net sales

35.7%

16.3%

23.8%

3.30%

Net profit margin

Net earnings
Net sales

26.3%

12.4%

14.1%

1.86%

Cash flow margin

Cash flow from operation

Net sales

38.3%

31.8%

29.1%

Return on assets

Net earnings
Total assets

18.1%

8.2%

2.38%

Return on equity

Net earnings
Stockholders' equity

23.2%

10.5%

4.98%

Cash flow from operation

Total assets

26.4%

21.0%

Profitability ratios
Gross profit margin

Operating profit margin

Cash return on assets

Gross profit
Net sales

5.5 Market Ratios

This ratio measures the earnings for each share owned. The higher result is preferable.
The increase was due to the increase in sales and net incomes. Earnings per share was high and
increased in 2010, but decline in 2009. The company generated higher earnings per shares than
its competitors. In 2010, the company earned $2.06 of net earnings for each share of stock,
while its competitor can earn only $0.66.

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Exhibit 5.5: Market Ratios
Market ratios
Earnings per common share

Net earnings
Average common stock shares
outstanding

2010
2.06

2009
0.79

9.90

24.90

Price to earnings

Market price of common stock

Earnings per share

Dividend payout

Dividends per share

Earnings per share

7.65%

17.72%

Dividends per share

Market price of common stock

0.77%

0.71%

Dividend yield

2008
0.93

Industry
Average
0.66

48.24

PART 6: CONCLUSIONS
After analyzed the financial statements of Intel, all parts are related. We cannot analyze
only one part itself. Every financial statement has relationship. The following strengths and
weaknesses are from the major findings of the analysis.
Strengths

Current, quick and cash flow liquidity ratios increased and were above industry average.

High profitability rates.

Higher and positive cash flow operating activities.

Good control of operating expenses, higher sales volumes resulting operating profit
margin increased.

Return on investment and equity has increased and were above the industry average.

Number of days pay suppliers decreased indicating that the company had longer days to
pay suppliers.

Earnings per share increased and were higher than the industry average.
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Intel had less risky in capital structure because the debt to assets and debt to equity
were lower than the industry standard.

6.3 Weaknesses

Poor control of inventory and fixed assets resulting inventory turnover, fixed assets
turnover and total asset turnover were below the industry average.

Days inventory held has grown to a much higher amount than the industry.

Price per earnings ratio was declined and below the industry average.

The company generate lower rate of earning per shares.

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