Balance sheet
Intel Corporation’s balance sheet as at December 26th, 2015 indicates that it is financially stable. Its total assets increased in the last three financial years indicating that the company is growing. Further analysis shows that the current ratio of the firm as at December 26, 2015, was 2.576 implying that it had sufficient current assets to settle its current liabilities. This further indicates that Intel Corporation has a high liquidity. The current ratio increased from 1.732 in 2014 suggesting that the liquidity of Intel improved in 2015. Assessment of its long-term financial stability shows that the firm is solvent. The debt ratio was 0.397 as at the end of the 2015 financial year. This shows that only 39% of its total assets were acquired through borrowing. The leverage is less than 50% indicating that the financial risk is low as it can repay all its obligations with its existing assets (Stittle & Wearing, 2008). The debt ratio increased from 0.382 in 2014 indicating that the solvency of Intel declined in 2015.
The low debt-equity ratio also indicates the strong financial position. The debt-to-equity ratio as at December 26, 2015, was 0.673 indicating that the value of debt was less than that of equity. A firm is financially stable if most of its operations and assets are financed by internal sources of finance (Viscione & Roberts, 2011). The ratio increased from 0.629 in 2014 to 0.673 in 2015 showing a slight fall in the financial stability of Intel.
The above analysis of the balance of Intel indicates that the firm is in a sound financial condition. Financial stability is critical for any investment analysis. A company with a high leverage can be wound up if it fails to repay its debt (Viscione & Roberts, 2011). Besides, a high leverage may lead to restrictive covenants that limit the amount of dividends paid unless as further borrowing, among other aspects.
Analysis of the income statement
The income statement shows that Intel’s total revenue increased in 2014 from 2013 but declined in 2015. The company’s operations are profitable since both the operating and net incomes are positive (Moles, 2011). Net income increased in 2014 but decreased slightly in the year 2015. Intel’s net profit margin for the year 2015 was 20.63%, a slight fall from 20.95% in 2014. Intel Corporation earned a net income $0.2063 per dollar of total revenue earned in 2015. Its return on assets was 11.08% in 2015 and 12.74% in 2014. The firm’s return on equity was 20.95% in 2014 but declined to 18.70 %. The above ratios indicate that Intel is profitable since the net profit margin, ROE and ROA were positive and high.
The profitability of the company has enabled it to pay dividends consistently for the last five years. In 2015, it paid annual dividends of $0.96 per share in equal quarterly dividends of $0.24. In 2014 and 2013, Intel paid an annual dividend of $0.90 in four equal interim dividends of $0.225.
Cash flow statement analysis
Intel’s cash flow statement shows that it has had positive cash flows from operating activities for the last three years. This shows that it does not face any cash flow problems. Cash flows from operating activities declined both in 2014 and 2015 indicating a fall in cash availability in the firm. Operating cash flow ratio was 1.213 in 2015 indicating that Intel’s cash flows from operating activities were adequate to repay its current obligations (Megginson, Smart & Graham, 2010). Besides, operating cash flows were more than dividends paid in each of the three years from 2013. This implies that the firm had adequate cash to pay dividends (Megginson, Smart & Graham, 2010). Besides, current liability coverage ratio for the year 2015 was 0.923 indicating that operating cash flows net of dividends paid could repay 92% of the current liabilities. In each of the years from 2012 to 2015, the company had a positive balance of cash and cash equivalents.
The above analysis indicates that the company has adequate cash to pay dividends and a significant percentage of its short-term obligations. Cash availability is critical in ensuring the company pays dividends consistently. The declaration and payment of dividends increase the value of a stock and the return to investors.
Recommendation
Analysis of the balance indicates that Intel is in a sound financial condition. Its leverage is low hence it is financially stable. Besides, the current ratio is more than one showing that it has a high liquidity. It is less probable that Intel will default its debt obligations. Profitability analysis indicates that it is profitable and offers a high return on assets and equity. Profitability directly affects the price of the stock as well the return on investment by shareholders (Berk, 2010). It also contributes to cash availability which enables the firm to pay dividends. Intel generates adequate operating cash flows hence, it is not facing any cash flow problems. It maintained dividend payments and dividend growth over the last five financial years. Analysis shows that its performance will continue to improve in the coming years. Therefore, the stock of Intel is a good buy and promises a high return on investment. I recommend investors to invest in the stock.
References
Berk, J. (2010). Fundamentals of corporate finance. Frenchs Forest, N.S.W.: Pearson
Australia.
Megginson, W., Smart, S., & Graham, J. (2010). Financial management. New York:
Cengage Learning.
Moles, P. (2011). Corporate finance. Hoboken, N.J.: Wiley.
Stittle, J., & Wearing, B. (2008). Financial accounting. Los Angeles: SAGE Publications.
Viscione, J., & Roberts, G. (2011). Contemporary financial management. Columbus: Merrill.
