Comprehensive Ratio Analysis

Comprehensive Ratio Analysis

In this section, comprehensive ratio analysis of both Intel and AMAT companies will be provided. The financial ratios that will be used to analyze how the two companies are performing include short term Liquidity, operating efficiency, capital structure, long-term solvency, profitability, and market measures from 2018 to 2019.

Short Term Liquidity

Intel’s current, quick, and cash ratio deteriorated from 2018 to 2019. Although the company’s current assets increased from $28.787 billion in 2018 to $31.239 billion in 2019, its current liabilities also increased from 2018 to 2019, leading to a decrease of current ratio from 1.7314 t0 1.4002. For both quick ratio and cash ratio, they deteriorated as a result increased short-term obligations of the company despite increased cash and marketable investments and receivables increasing from 2018 to 2019.

For the AMAT Company, the current ratio, quick ratio, and quick ratio deteriorated from 2018 to 2019 as a result of decreased current assets from $10.604 billion in 2018 to $10.206 in 2019. Additionally, there was an increase in total current liabilities from $3.922 billion in 2018 to $4.447 in 2019, leading to a decrease in the current ratio from 2.7037 in 2018 to 2.295 in 2019. Both the quick ratio and cash ratio decreased as a result of decreased cash on hand from $4.030 in 2018 to $3.618 in 2019. The company had no notes or loans receivable, and therefore quick ratio was equal to cash ratio.

Although both Intel and AMAT are in an excellent position to pay their short term obligations, they need to worry, especially Intel, whose current ratio is below the recorded. If the trend of deteriorating current assets continues, the company will find itself unable to meet its current liabilities.

Operating Efficiency

For AMAT, the asset turnover, inventory turnover, and receivable turnover decreased from 0.9474, 2.4692, and 7.1911 in 2018 to 0.7679, 2.3667, and 5.7671 in 2019, respectively. This indicates that the company’s efficiency deteriorated from 2018 to 2019 as high asset turnover, inventory turnover, and receivable turnover ratio shows that the company is doing better in utilizing its assets, managing its inventory and in collecting its bills.

For AMAT, the asset turnover, inventory turnover, and receivable turnover ratios deteriorated from 2018 to 2019. This indicated that the company efficiency for its fixed assets to produce revenues decreased from 0.5537 in 2018 to 0.5271 in 2019. For the inventory turnover, a decrease from 3.7379 to 3.4109 indicates that Intel was not efficiently managing its inventory, which may result from overstocking as inventory was more in 2019 than in 2018. Finally, the receivable turnover ratio decreased from 10.5397 to 9.3961, which showed a decrease in the inefficiency of the company to collect its bills.

Although both AMAT and Intel have decreased operating efficiency from 2018 to 2018 based on the three ratios, the companies still have excellent operating efficiencies when the industry ratios are taken into consideration

Capital structure

The capital structure of Intel is low risk. Although the debt ratio has increased from 35.35% in 2018 to 37.42%, the debt is far less than its equity, which means that the company can pay for it without interfering its operations. This increase resulted from increased total debt from $53,400 million to $59,020 million

The capital structure of AMAT indicates high risk. Its debt ratio decreased from 77.56% to 64.68% as a result of increased equity from $6,845 in 2018 to 8,214 million in 2019. Additionally, the company reduced its long-term debt from $6866 to $6363 million. However, despite the decrease in debt from 2018 to 2019, the company may not be capable of paying its total debt without affecting the company’s operations, and that is its risk is still high.

Long-Term solvency

For Intel, the long-term debt decreased from 25.18% in 2018 to 24.62% in 2019. This resulted from decreased long-term debt in the company’s balance sheet from $36,774 in 2018 to $36,710 million in 2019. Therefore, the company is in excellent long-term solvency with little debt and reasonable commitments to pay for.

For AMAT, long-term debt decreased from 43.68% in 2018 to 36.46% in 2019, which resulted from decreased long-term debt from $6866 million to $6363 million. This indicates that AMAT is in a great position of long-term solvency due to little long-term debt and other reasonable commitments.

Profitability

For AMAT, its gross profit, operating profit, and net profits have decreased from 2018 to 2019. This has resulted from the company’s decreased revenue from $16,705 million in 2018 to $14,608 million in 2019 without much change in the cost of the goods sold.

Similarly, Intel’s gross profit, operating profit, and net profit have decreased from 2018 to 2019, owing to the increased cost of goods sold compared to a slight increase in revenues. The cost increased from $27,111 million in 2018 to $29, 825 million in 2019.

However, both companies are in a good position to continue innovating and expanding their operations in 2019 as they have experienced slight changes.

Market Measures

Market capitalization is a good measure of a company’s influence on the market. Intel had a market capitalization of $211.936 billion in 2018, which increased to $256.757 in 2019. In 2018, AMAT had a market capitalization of $31.795 billion, which increased to $49.702 billion in 2019. Intel has the largest market capitalization when compared to other industries in the same market as NVIDIA ($149.391B), and Texas Instruments ($93.379B). AMAT comes fourth on this list with 49.702B as of 2019.

References

Macrotrends (2020). Applied Materials Financial Statements 2005-2020 (AMAT). https://www.macrotrends.net/stocks/charts/AMAT/applied-materials/financial-statements

Intel (2018). Intel Reports Fourth-Quarter and Full-Year 2019 Financial Results. https://s21.q4cdn.com/600692695/files/doc_financials/2019/Q4/Q4-2019_EarningsRelease.pdf