In this paper, I use the annual report for Intel Corporation for the year ended 31st December, 2014 to answer the said questions.
Relevant information revealed by the income statement
The income statement for Intel gives valuable information on the total revenue for the company in the last three years. Total revenue is important since it directly determines the net profit and the profitability of the company. In the year ended December 2014, Intel total revenue was $55,870 million. In 2013, the company’s total revenue was $52,708 million while in 2012; the figure was $53,341 million. This information is important in determining the sales growth ratio. The figures indicate that Intel’s total revenues declined by 1.19% in 2013 before increasing by 6% in 2014 (Finance.yahoo.com, 2015). The company can compare the revenue growth rates with the targeted growth rates and assess whether it is doing well or not. The management can also compare the figures with its competitors and industry benchmarks to determine its relative performance. Intel’s revenue for 2014 is less than Samsung’s total revenue of $215,090 million (Finance.yahoo.com, 2015). It is also less than the industry average total revenue of $372,980 million. This indicates that the performance of Intel Corporation is below that of its peers in the sector and the industry average.
The income statement also reveals that Intel Corporation’s operations were profitable in 2012, 2013 and 2014. The net income was $11,005 million in 2012, but it declined to $9,620 million in 2013. The net income increased to $11,704 million in the year 2014. The net profit was higher than those of competitors like Texas Instruments Inc. and Advanced Micro Devices, Inc. However, this performance is below that of the leading firm, Samsung Electronics, which had a net income of $28,050 million. This implies that Intel Corporation’s net profit margin was 20.63% in 2012 before declining to 18.25% in 2013. The ratio then increased to 20.95% in 2014. The trend implies that the profitability of Intel declined in 2013 then increased in the year 2014.
The income statement also indicates earnings per share, which is an important measure for Intel Corporation’s shareholders. In 2012, Intel’s EPS was $2.20 before it fell to $1.94 in 2013. The ratio then increased to $2.39 in the year 2014. This indicates that the return on shareholders’ funds fell in 2013 but improved in 2014. Among its direct competitors, only Texas Instruments, Inc. had a higher EPS than that of Intel Corporation. The EPS for Intel was higher than the industry average of $0.07 indicating that it did better than most of its competitors in the sector.
Important information on the balance sheet
The balance sheet gives valuable information for assessing the liquidity and solvency of Intel Corporation. Important items include total assets, current assets, current liabilities and shareholders’ equity.
As at December 27, 2014, Intel’s total current assets were $27,730 million while the total current liabilities were $16,019 million. It indicates that the current ratio for the company was 1.73 hence Intel had adequate current assets to meet its short-term obligations. As at 27th December, 2013, total current assets were $32,084 million while total current liabilities were $13,568 million. The current ratio for Intel in 2013 was 2.364 indicating that it had current assets worth $2.364 for each dollar of current liability. The reduction in the current ratio in 2014 shows a decline in the liquidity of Intel Corporation. The current ratio was slightly lower than the industry benchmark ratio of 1.8 indicating that the company’s liquidity was slightly less than the industry average. This information is valuable to managers in working capital decisions as well as suppliers willing to sell to the company on credit.
Total assets, total liabilities and shareholders’ equity enables an analyst to assess the solvency of Intel Corporation. As of December 2014, Intel Corporation’s total assets were $91,956 million while total liabilities were $36,391 million. Therefore, total debt ratio for Intel Corporation was 0.3957 indicating that only 39.57% of the company’s total assets were acquired through borrowing. This further suggests that its solvency is high since the ratio is less than 50% hence the risk of liquidation initiated by creditors is small. As on December 2013, total assets were $92,358 million while total liabilities were $34,102 million. The total debt ratio for the company was 0.3698. Intel’s debt ratio declined from 0.3698 in 2013 to 0.3957 in 2014 thus indicating a slight increase in Intel’s solvency. The industry average total debt ratio was 38.68% indicating that Intel’s solvency was slightly less than the industry benchmark figure.
Total shareholders’ equity was $55,865 million in 2014 and $58,256 million in 2013. The deb-equity ratio for Intel in 2014 was 0.6514 indicating that the value of equity was greater than that of debt. In 2013, the debt-equity ratio was 0.5854 indicating that total debt was only 58% of the value of total equity. Shareholders had a larger claim on Intel’s assets than debt holders’ claim. This ratio is higher than the industry benchmark of 24.09% indicating that Intel’s solvency was less than the industry’s average (corp, 2015).
Major sources of funding
The balance sheet and the statement of cash flows give information that could indicate the sources of funding for the company. Liabilities and equity show how the company financed the acquisition of its total assets. Major sources of short-term funding included accounts payable and accrued compensation and benefits. These short-term obligations remain sources of funding until the company pays them off. As at December 2014, Intel’s accounts payable and accrued compensation and benefits were $2,748 and $3,475 million respectively. In 2013, the company had $2,969 million and $3,123 million in accounts payable and accrued compensation and benefits respectively. The primary sources of long-term funding were equity and long-term debt. As at December 2014, Intel’s long-term debt was $12,107 million, which was a decline from the $13,165 million the same period in 2013. Shareholders' equity that consists of common stock, retained earnings, and other comprehensive income was $55,865 million as at December 2014 and $58,256 million as at December 2013.
The cash flow statement indicates that Intel Corporation obtained funds from the sale of common shares under the employee equity incentive plans. It raised $1,660 million under this scheme in 2014. In 2013 and 2012, it raised a total of $1,588 million and $2,111 million respectively through the plan. It also received $122 million, $49 million and $142 million in 2014, 2013 and 2012 respectively from government grants. Intel also received $6,124 million from the issuance of long-term debt in 2013.
Responsibility for financial statements
Intel Corporation is a registered company hence its board of directors is responsible for the issuance of the financial statements (Porter & Norton, 2012). The board has the responsibility of presenting the report to the shareholders and the relevant regulatory authorities like the Securities and Exchange Commission (Porter & Norton, 2012). The board must also make sure they are available for access by any member of the public.
Under the provisions of the SOX Act, the board has the responsibility of preparing company’s financial statements and presenting them to the shareholders. The Act provides that the directors are responsible for the company’s internal control system that ensures the records are accurate and complete. The board carries the primary responsibility for the contents of the Intel’s financial statements. If there are significant misstatements in the financial statements, the directors will be held responsible first. They are required to establish internal controls to detect and prevent fraud and errors in financial reporting. Independent auditors only carry secondary responsibility for fraud and misrepresentations in the financial statements.
Ernst & Young LLP audited the statements included in the annual report of Intel Corporation. According to the auditor, the balance sheets, income statements and the statements of cash flows of Intel Corporation were prepared in accordance with the US GAAPs. The auditor assured the users of these statements that the statements as whole were fairly presents in all material aspects the items included in the statements (Porter & Norton, 2012). In addition, the auditor has indicated that they audited Intel’s internal control systems based on the standards of COSO. They noted that Intel maintained adequate and effective internal controls. The assurance of the effectiveness of internal controls is an assurance of the accuracy and completeness of the financial statements.
However, the above assurance is only limited to the statements as a whole and that the statements reflect fairly the condition and performance of the company. Some errors and fraud may not be detected by the auditors or the internal controls (Porter & Norton, 2012). In addition, the assurance is on the financial statements as a whole not on the individual items.
Notes to financial statements
Notes to financial statements complement the financial statements by allowing the management to communicate details that cannot be included in the financial statements (Albrecht, Albrecht, Swain, Stice & Stice, 2007). The notes explain the basis for the preparation of the statements as well as the accounting policies of the company. For instance, Intel’s prepares consolidated statements for the corporation and its subsidiaries. In addition, the basis of presentation indicates the length of the company’s accounting period. The accounting period for Intel is either 52 or 53 weeks ending 31st December every year. Intel has also explained accounting practices such as the fair value accounting for financial assets. It also disclosed the accounting policy on inventory that it determines the cost of its inventories using the FIFO method.
Note to financial statements also gives a break-down of all the items making up each element in the financial statements. The financial statements do not contain details of the particular items. These details are included in the notes to statements. For instance, Intel’s inventories were $4,273 million in 2014 and $4,172 million in 2013 as shown in the statements. In the notes, Intel has given a breakdown of the items making up its inventory together with their respective values. The inventories costing $4,273 consisted of raw materials worth $462 million, work in process worth $2,375 million and finished goods worth $1,436 million. All this information cannot be included in the financial statements. The break-down of other items such as property, plant and equipment, shareholders’ equity, accounts receivable, among other items are is also shown in the notes to the financial statements. The notes also show the computation of items in the statements such as earnings per share, depreciation, provision for taxes, among other items.
Albrecht, W., Albrecht, W., Swain, M., Stice, J., & Stice, E. (2007). Accounting concepts & applications (10th ed.). Cincinnati, Ohio: Cengage Learning.
Corp, i. (2015). INTEL CORP (INTC: Consolidated Issue Listed on NASDAQ Global Select): Financial Ratios - BusinessWeek. Businessweek.com. Retrieved 19 April 2015, from http://www.bloomberg.com/research/stocks/financials/ratios.asp?ticker=INTC
Finance.yahoo.com,. (2015). INTC Competitors | Intel Corporation Stock - Yahoo! Finance. Retrieved 19 April 2015, from http://finance.yahoo.com/q/co?s=INTC+Competitors
Porter, G., & Norton, C. (2012). Financial Accounting: The Impact on Decision Makers (8th ed.). Mason, Ohio: Cengage Learning.