Question

2) The table summarizes the financial conditions for Intel Corporation (INTC), a manufacturer of various computer- processing chips for fiscal year 2013. Compute the various financial ratios and interpret the firm's financial health during fiscal year 2013. The closing stock price was $25.50 on December 31, 2013 and the average number of outstanding shares was 4.98 billion. (a) Debt ratio (b) Times-interest-earned ratio (c) Current ratio (d) Quick (acid-test) ratio (e) Inventory-turnover ratio (f) Days-sales-outstanding (g) Total-assets-turnover ratio (h) Profit margin on sales (i) Return on total assets (with a tax rate of 40%) (j) Return on common equity (k) Price/earnings ratio (1) Book value per share

Answer 1

Before seeing the answer please note following 2 points :

1. We have computed all the required ratios taking the figures as at 28th December, 2013. The ratios for 2012 can also be computed using the formulas used in the same.

2. The image of question is a little blurry so there might be cases where the figures have been taken incorrectly from balance sheet. I apologize for such instances, if any.

Answer :

a) Debt Ratio = Total liabilities/Total Assets = 34,120,000/92,358,000 = 0.37 times

b) Times-interest-earned ratio = EBIT/Interest = 48,999,000/1,316,500 = 37.21 times

Calculation of Interest :

Assumption used : Since no interest expense has been given in the income statement and no interest % has been provided against long-term debt, we have assumed the interest % to be 10 % and calculated interest expense as follows :

Interest expense = 13,165,000*10% = 1,316,500

c) Current Ratio = Current Assets/Current Liabilities = 32,084,000/13,568,000 = 2.36 times

d) Quick Ratio = (Total current assets - Inventory - Prepaid Expenses)/Current liabilities = (32,084,000 - 41,72,000 - 16,49,000) / 13,568,000 = 1.94 times

e) Inventory-Turnover Ratio = Cost of goods sold / Avg Inventory = 106,606,000 / ((41,72,000 + 47,34,000)/2) = 23.94 times

f) Days sales outstanding = (Accounts receivable/Net credit sales) * 365 days = (61,26,000/170,910,000)*365 = 13.08 days

Assumption Used : Since bi-furcation of cash and credit sales is not given in the question, we have assumed all sales to be credit sales.

g) Total assets turnover ratio = Net sales / Average total assets = 170,910,000 / ((92,358,000 + 84,351,000)/2) = 1.93 times

h) Profit margin on sales = Net income / Net sales = 48,999,000 / 170,910,000 = 28.67%

Assumed : Net income is before tax since tax rate has only been specifically mentioned for Part "i" in the question

i) Return on total assets = Net Income / Average Total assets = (48,999,000 - 40%*48,999,000) / ((92,358,000 + 84,351,000)/2) = 33.27 %

j) Return on common equity = Net income / Shareholders Equity = 48,999,000 / 58,256,000 = 84.11 %

Assumed : Net income is before tax since tax rate has only been specifically mentioned for Part "i" in the question

k) Price-Earnings Ratio = MPS/EPS = 25.50 $ / .01 $ = 2591.69

MPS = 25.5 $ is given in the question

EPS has been calculated as follows : Net income / Weighted average of outstanding shares= 48,999,000 / 4,980,000,000 = .01 $

Assumed : Since no other information is given in the question we have to assume 4.98 billion shares to be equal to weighted average of outstanding shares during the year.

l) Book value per share = Shareholders Equity / Number of shares = 58,256,000 / 4,980,000,000 = 0.12 $