Intel Corporation Financial Statements
Intel Corporation is an American-based company that designs and manufactures digital technology platforms. The digital platforms are used in servers, computers, smartphones, tablets, among other products ("INTC Profile | Intel Corporation Stock - Yahoo Finance", 2016). Other products include microprocessors, security solutions, connectivity and communication products, among other products and services. It major segments are the Client Computing Group, Software and Services, Data Centre, Internet of Things Group, among other segments ("INTC Profile | Intel Corporation Stock - Yahoo Finance", 2016).
This paper uses the income statement and the balance sheet of Intel Corporation as at December 26th, 2015 to prepare a pro forma income statement and balance sheet using the percentage of sales method.
Percentage of sales method
The method involves forecasting items in financial statements based on the percentages of the current year’s sales (Petty & Petty, 2015, p. 180). Firstly, all the elements in the income statement and the balance sheet are expressed as a percentage of the current year’s sales. The value of sales for the coming year is predicted based on the historical values of sales. The forecasted sales figure and the percentages are used to determine the values of each of the income statement and balance sheet items.
Sales forecast
A study of Intel Corporation’s net revenue for the last five years indicates that the net revenue declined in 2012, 2013 and 2015. In 2015, the company earned a net revenue of $55,355 million, down from $55,870 million in 2014. The decline was primarily due to currency fluctuations, the decrease in PC demand, among other factors, partially offset by improved performances in Internet of Things Group. The appreciation of the US dollar in the first and second quarters of 2015 had an adverse impact on the company’s net revenue. This was worsened by the fact that 80% of Intel Corporation’s sales for the year 2015 were outside the US. The company is, however, mitigating the foreign currency risks through hedging measures such as forward contracts and currency interest rate swaps.
The sales for 2016 was forecasted as $55,827 million. This was obtained using the Excel forecast function and the sales figures for the years 2011 to 2015. The forecast suggests that sales will increase in 2016. I strongly believe that the forecast is reasonable. In the year 2015, sales dropped primarily due to the challenges the company faced including the fall in demand for PC, currency appreciation and macroeconomic challenges. It is the period in which the Chinese economy slowed down alongside a free-fall in its stock market. Towards the end of the year, the company’s sales improved as the macroeconomic conditions improved. The company still faces challenges especially in the demand for PC as consumers are switching to other alternatives. The macroeconomic conditions have improved, and no major events have occurred globally except the Brexit, which so far, has not had any significant adverse impacts on the sales of multinational corporations. The increase in the value of the US dollar has eased hence the firm faces less currency risk as in 2015. Besides, the strong performance of the Internet of Things Group is expected to continue. Therefore, the net revenue for 2016 will improve due to the above positives but will be partially offset by the low demand for PC, among other challenges.
Limitations of the forecasts
The percentage of sales method is only suitable for forecasting items that are correlated to sales. Most income statement items are correlated to sales and can be suitably estimated based on their percentages of sales. However, certain items are not correlated to sales. Most balance sheet items do not correlate to sales hence using the percentage of sales method may not give an accurate forecast.
Insights from the forecasting process
The Client Computing Group is the largest segment by revenue. A reduction in the net revenue of this segment contributed to the decline in the firm’s net revenue. Other segments such as Internet of Things Group, Software Services Group, among others, experienced an increase in their net revenues. Besides, individual customers contribute a greater percentage of the company’s net revenues. In the year 2015, Hewlett-Packard Company and Dell Inc. contributed 18% and 15% of the total revenue respectively.
A study of the percentages of sales shows that the company’s operations are profitable. In 2015, the cost of sales was 37% of the total revenue. The company had a high gross profit margin as well a high operating margin. The net income was 21% of the total revenue implying that the company’s net profit margin was high.
The pro forma income statement and balance sheet indicate that the company’s performance will improve. Intel Corporation had a strong performance and is also financially stable as shown by the composition of equity and debt in the capital structure.
References
INTC Profile | Intel Corporation Stock - Yahoo Finance. (2016). Finance.yahoo.com.
Retrieved 28 August 2016, from http://finance.yahoo.com/quote/INTC/profile?p=INTC
Petty, J. & Petty, J. (2015). Financial Management: Principles and Applications (6th ed.).
Frenchs Forest, N.S.W.: Pearson Education Australia.
Shim, J. & Siegel, J. (2008). Financial management (3rd ed.). Hauppauge, N.Y.: Barron's.
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