Operating Risk- Doc
Added on - 19 Sep 2019
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Advance micro devices Inc.Corporate Finance
IntroductionIn this present paper, we will discuss the financial ratios of Advance micro devices Inc. which isa multinational semiconductor company of America. The company is based in Sunnyvale,California, the United States. The company provides computer processors and relatedtechnologies for the consumer market and business. The main products of the company includemotherboard chips, microprocessors, embedded processors, server workstation, graphicprocessor and others. The company traded under NASDAQ and it lies under the semiconductorindustry. It is the second largest supplier, and the company serves its products worldwide. Thetotal equity of the company is $385 Million, and total assets of the company are 3.616 Billion(Global Provider of Innovative Graphics, Processors and Media Solutionset al., 2016).Operating riskThe operating risk is defined as the risk which is summarised by the company at the time ofoperating within the particular industry. The operational risk remains after predicting thesystematic and financial risk. The company faces various operational risks such as humanresource, system, internal procedure (Makaew et al., 2015). The operational risk of the companyincludes a risk of a breakdown in internal procedure, inability to perform the operationssuccessfully by human risk, fraud risk, the risk of recruiting ineffective human resources and riskof wrong internal management decision.
Financial riskThe financial risk is defined as the risk which includes the loss of money by the shareholders dueto investing in the particular debt due to which the company is unable to meet its financialobligations. It is the risk which is related to the financial industry. The risk is related to thefinancial transactions such as the loan of the company, investment of funds and others. There isvarious type of financial risks such as credit risk, liquidity risk, the risk of change in price, andcurrency risk. The credit risk is the default risk in which there is a risk of the borrower to pay theborrowed amount. The liquidity risk is defined as the risk which is faced by the company due toan inability of purchase and sale of securities in the volatile market. The debt to totalcapitalization ratio of the company in 2014 is 10.88 which shows that the company has highfinancial risk because of having high debt contribution in the capital of the company which needsto repaid to the lenders but the company is taking the risk in order to get higher profit.Preferred StockThe preferred stock is defined as the class of ownership in which the shareholders are preferredfirstly at the time of distributing dividend, and the amount of dividend is fixed. The preferenceshareholders are also preferred first at the time of winding up of an organisation. No, thecompany does not have preferred stock.Capital structureThe capital structure is the total sources of finance which are used by the company for itsoperations and growth (Rampini et al., 2013). The capital structure of the company includes
equity, debts, common stock, long-term debt, and short-term debt. The capital structure is shownbelow:Source: (websiteet al., 2016)Current actual betaThe beta is defined as the measure which is used in a fundamental analysis to predict thevolatility of portfolio in relation to the overall market. The current actual beta of the company is2.7. Thus it is higher than one which shows that the volatility ofAdvanced Micro Devices, Inc.ishigher than the market volatility.Unlevered Beta of the companyThe formula for calculating Unlevered beta is beta / 1 + (1 - tax rate) x (debt / equity). Theunleveraged beta of the company is 1.78. The unleveraged beta does not include the liabilitiesand debts of the company.