International Finance Report: Intel Corporation Analysis 2016-2017

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This report provides a comprehensive financial analysis of Intel Corporation, focusing on the impact of the international financial environment on its performance. It examines key financial ratios, including liquidity, profitability, efficiency, and solvency ratios, using data from the company's 2016 and 2017 annual reports. The report also discusses Intel's international financial strategy, covering sources of finance, capital structure, earnings and dividend policy, and risk management, with a particular emphasis on strategies to mitigate currency risk. The analysis considers the effects of economic changes, foreign currency exchange rates, and international capital markets on Intel's financial performance, highlighting transactional and foreign exposure risks.
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RUNNING HEAD: International finance
1
Name of the student-
Topic- International finance
University-
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International finance
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Table of Contents
Introduction................................................................................................................................2
Description of the Company......................................................................................................2
The answer to the question-A....................................................................................................2
The answer to the question no-B................................................................................................4
The answer to question no-C....................................................................................................10
Answers to question no-D........................................................................................................11
Conclusion................................................................................................................................14
References................................................................................................................................15
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International finance
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Introduction
There are several financial analysis tools which could be used by investors to analyze
the financial performance of company such as ratio analysis, trend analysis, top-down
analysis, bottom-up analysis. In this report, Intel Corporation Company has been taken into
consideration. This report focuses on the financial analysis of the company and the impact of
the international trend and business on the organization. In the starting of this report, financial
performance of Intel Corporation has been given. After that international financial risk has
also been evaluated. After that use of hedge funding has been taken into consideration.
Description of the Company
Intel Corporation is an American Corporation and technology company having
headquartered in Santa Clara, California, in the Silicon Valley. This Company is indulged in
management in providing technical and advance gazettes and tools to the people at
international level. Currently, the shares of the company are traded at US$ 51.86 -0.86 (-
1.63%). The present CEO of the company is Brian Krzanich who takes all the managerial
decisions. This company has high growth in its business functioning and consistently
increased its overall turnover by average 20% since last five years. (Intel Corporation 2017).
The answer to the question-A
There are several economic changes and international financial markets have shown
various positive and negative factors which may impact the financial performance of Intel
Corporation. However, due to the international business and import and export of its goods
and services, Intel Corporation has been facing several risks such as Transactional risk
transactions risk, foreign currency risk, and international market risks. With the advent of
technologies and increased US dollar value on the international market has resulted in several
big losses to the company. The main big losses arise due to the impairment loss valued on the
basis of implemented impairment test as per the IAS-136. The company has to value the book
value of its assets while reporting the consolidated balance sheet. There are several markets
which impact the financial performance of Intel Corporation (Intel Corporation 2017).
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International finance
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International capital market
This market is accompanied with the market capitalization of the shares traded on the
international stock exchange. If the market capitalization is high and offering high growth
then the company will have to offer the high dividend or return on earning to its shareholders.
It is evaluated that international capital market is showing high market capitalization and at
the same time industry average return to its shareholders is already too high. It is observed
that the international capital market is also affecting the performance value of Intel
Corporation when currency value is depreciated of another country. It will impact the value
of the capital raised by the Intel in the international market when the other currency value is
depreciated over the US $ value (Higgins, 2012). In addition to this, the recent financial
EURO crises have also shown the negative impact on the financial performance of the Intel.
It is analyzed that due to the decreased value of the EURO currency, all the inflow from
Europe has been depreciated by drastic rate (Grant, 2016). It has not only destructed the
value of the assets of the company but also negatively impacted the business performance of
the organization (Bloomberg, 2017).
Foreign currency exchange rate
Intel Corporation has been indulged in providing its technical tools and services on
the international level. It is analyzed that when Intel Corporation receives cash inflow from
other currency then it will result in foreign currency risk exposure. On the other hand, the
currency value of the US is strengthening as compared to other countries. Eventually, Intel
will have to face the decrease in the overall inflow of the cash from other countries due to the
low currency value. In addition to this, due to the international business, Intel Company also
has to face transactional risk in this reporting frameworks. Intel Not only has to report its
financial statement in one US country but also in other countries. Therefore, business units in
another country will be depreciated while reporting in the US due to the strengthening the US
value on the international market (Financial Times, 2017).
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Therefore, in the end, it could be inferred that Intel Corporation has to face several
risks such as transactional, transaction and another foreign exposure risk which will impact
the revenue received from other countries (Jordan, 2014). This shows that Intel Corporation
may enjoy the high brand image on the international market but while computing the revenue
and income of the organization, it will have to analyze all transactional, transaction and
another foreign exposure risk in its business (Investor’s business daily, 2017).
The answer to the question no-B
Financial performance of Intel Corporation
The Financial performance of Intel Corporation is analyzed by using the five key
ratios of the business. It helps in analyzing the performance of the company by setting the
relation between two financial factors of the organization. (Intel Corporation, 2016).
Liquidity ratio
This ratio reveals company’s ability to pay off its short term and long term debts by
using the current assets of the organization.
Current ratio
The current ratio of the company has gone down to 1.69 in 2017 which is .70 points
lower as compared to last five year data. However, in 2016, the company had 1.75 current
ratios which further went down to 1.69. However, the market industry ratio is already too
high i.e. 3.48. Intel might think of increasing its overall current ratio to meet the current
market demand (Flannery, 2016).
Descr
iption Formula Intel Corporation
Market
industry
ratio
2013-
06
2014-
06
2015-
06
2016-
06
2017-
06 TTM
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Curre
nt
ratio
Current assets/current
liabilities 2.36 1.73 2.58 1.75 1.69 3.48
Quick
Ratio
Current assets-
Inventory/current
liabilities 2.06 1.46 2.25 1.48 1.29 2.68
Quick ratio
This ratio reveals company’s immediate ability to meet its short term and long term
liabilities. It is observed that company has decreased its investment in quick assets and kept
1.29 quick ratio in 2017. This shows that company is investing less capital in its operating
assets with a view to save the cost of capital (Intel Corporation, 2017).
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Profitability ratio
This ratio reflects company's ability to earn profit from its overall turnover. It is
observed that Intel Corporation has efficient profitability throughout the time. This ratio has
been divided into several parts which reflect accurate profitability ratio of the company in
different segments (Yahoo Finance, 2017).
Net profit margin
The net profit margin of the Intel Corporation has gone down to 15.30% in 2017
which is 3 % lower as compared to last five year. However, as compared to 2016 data, the net
profit margin of the company has decreased by 1%. The company needs to increase its
overall net profit margin if it wants to maintain a good profitability and attract more investors
(Intel Corporation, 2016).
Description Formula Intel Corporation
Market
industry ratio
2013-
06
2014-
06
2015-
06
2016-
06
2017-
06 TTM
Net margin
Net
profit/revenu
es
18.25
%
20.95
%
20.63
%
17.37
%
15.30
% 15%
Return on
equity
Net
profit/Equity
16.51
%
20.95
%
18.70
%
15.58
%
13.91
% 18%
Gross profit
margin
Gross profit/
Sales
59.80
%
63.74
%
62.65
%
60.94
%
62.25
% 55%
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Return on equity
The return on equity ratio shows the amount of return offered by company to its
shareholders. It is observed that company has decreased its return on equity to 13.91% in
2017 which is 3% lower as compared to last five year data. The return on equity has gone
down due to the decreased net profit of company. If Intel Corporation could not increase its
overall return on equity then it will have to face high loss in its investment strategy.
Gross profit margin ratio
This ratio reflects how well company earning gross profit from its overall revenue.
The gross profit of company has increased to 62% in 2017 which is 3% higher as compared
to last five year data. It is observed that company has increased its operating expenses with
the higher rate as compared to the sales increment. The company needs to reduce its overall
operating expenses if it wants to create value in its business (Intel Corporation, 2016).
Efficiency ratio
This efficiency ratio reflects company’s ability to efficiently use its overall business.
This ratio is divided into following parts given as below.
Receivable turnover ratio
This receivable turnover ratio reflects that company has increased its amount
blockage in its receivables. It shows the negative business functioning of the organization.
The company has increased its credit sales which will eventually increase its overall cost of
the capital. In 2013, Intel had 24.81 points receivable turnover ratio which increased to 32.81
in 2017. The company needs to lower down its overall sales to increase the overall efficiency
of the business.
Description Formula Intel Corporation
Market
industry
ratio
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International finance
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2013-
06
2014-
06
2015-
06
2016-
06
2017-
06 TTM
Receivables
collection
period
Receivables/
Total
sales*365 24.81 28.92 31.56 28.83 32.61 85.36
Payables
collection
period
Payables/ Cost
of sales*365 51.15 49.50 36.42 38.95 45.11 289
Asset turnover
ratio
Total sales/
Total assets 0.57 0.61 0.54 0.52 0.51 1.7
Payable collection period
Intel Corporation has managed its payable cycle period and lower down by 6 points since last
five years. It shows company efficiency to keep less amount blockage in its operating
activities. It is analyzed that in 2017, the company had 45.11 payable collection period which
is 6 points lower as compared to last five year data.
Assets turnover ratio
The assets turnover ratio reflects how well the company has used its assets in fetching
the sales of the company. It is analyzed that in 2017, the company had 57 points assets
turnover which decreased to 51 points in 2017.
Solvency ratio
This ratio reflects company’s debt funding and equity capital. It is ideally computed to
determine the financial leverage and cost of capital of the organization.
Debt to equity ratio
The debt to equity ratio reflects the relation between debt and equity capital of the
organization. In 2013, Intel had .59 points debt to equity ratio which increased to .79 in
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International finance
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2017. It shows that company needs to lower down its debt capital otherwise in case of less
profitability; it may face high financial risk.
Descriptio
n Formula INTEL CORPORATION
Market
industry
ratio
2013-
06
2014-
06
2015-
06
2016-
06
2017-
06 TTM
Debt to
Equity
Ratio
Debt/
Equity 0.59 0.65 0.69 0.71 0.79 3.61
Debt to
assets
Debt/
Total
assets 0.37 0.39 0.41 0.42 0.44 0.93
Gearing
ratio
EBIT/
interest
51.356
55738
81.468
75
42.599
40653
20.136
42565
28.359
13313 7.2
Debt to assets ratio-
The debt to assets ratio reflects the relation between debt and total assets of company. It is
observed that in 2013 company had .37 debts to assets which have increased to .44 points. It
shows that company has increased the debt portion and financed 44% of its assets by using
the debt funding. However, there is the very slight change in the debt to assets of the
company in 2016 and 2017 (Yahoo Finance, 2017).
Gearing ratio
This ratio reflects the relation between internet payment and total sales of the company. The
gearing ratio shows whether the company is able to cover its interest payment from its
earnings before interest and tax. . It is computed that in 2013 company had 51 points gearing
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ratio which has decreased to 28 points in 2017. It shows that company has reduced its
profitability and increased its debt portion (Yahoo Finance, 2017)
Investment ratio
This ratio divulges whether the company has efficient dividend policy or not.
Dividend payout ratio
This ratio reflects the relationship between net profit and dividend payment of the company.
In 2013, Intel Corporation gave 46% dividend to its shareholders out of its earning and in
2017 the percentage of dividend payout ratio went down to 52%. It shows that company has
either reduced its profitability or increased its retained earnings. In case of Intel, it has
reduced its profitability throughout the time.
Description
Form
ula INTEL CORPORATION
Market industry
ratio
2013-
06
2014-
06
2015-
06
2016-
06
2017-
06 TTM
Dividend
payment ratio
46.6
%
37.7
%
39.9
%
47.7
%
52.8
% 60.0%
The answer to question no-C
After analyzing the annual report of the company, it could be inferred that Intel
Corporation has been facing international currency risk due to its international business
functioning and high export and import from other countries. It is analyzed that more than
40% of its total revenue comes from other countries and due to the strengthen the currency
value of the US; Intel has to face high financial loss in its business while converting its cash
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International finance
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inflow in US currency. However, there are strategies which could be used by Intel to save it
from the international financial risk exposure.
Future and forward contracts
It is the hedging strategy which could be used by Intel to enter into the contract with
other parties at the stipulated rate or price. It will assist in entering into the contract with the
buyers and clients at the stipulated rate and remittance of the same money at the same value,
irrespective of the changes in the foreign exchange rate. Therefore, it could be inferred that
Intel Corporation could easily mitigate the foreign exchange risk and high volatility in the
international market by using the future, and forward contract (Finnie, 2012).
The issue of shares and bonds on an international level
Intel Corporation has set up the strong brand image on an international level. It is
evaluated that by the issue of shares and bonds in the international market, the company
could raise funds in the international market to arrange the capital in the international market.
It will save company to flow of funds from one country to another. Therefore, by raising
funds in the particular country, it could easily lower the foreign financial risk.
Risk management strategy
There is several risk management strategy which could be used by Intel Corporation
to manage its foreign currency risk in the market. Intel Corporation has been facing the risk
of high inflow and outflow of cash from its business without any supervision. Therefore, by
using proper cash management program and advance technology surveillance, it could easily
mitigate the risk of management of cash in the business. In addition to this, the company
could also use hedge funding process to mitigate the foreign currency risk in determined
approach. This risk management strategy will start with the identifying the currency value
risk, transactional risk, and transaction risk. After that proper hedge funding program and the
future contract would be used to mitigate the currency value risk. In addition to this, proper
strategic control system and operation control methods could be used by the company to
overcome the potential risk of the organization (Gitman, Juchau, and Flanagan, 2015).
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