5.Analysis of Solvency

2022 2021 2020 2019 2018 2017

Times interest earned 109.1 28.2 5.0 3.7 1.5

Short-term debt ($ millions) 0 312 0 0 136 70

Long-term debt ($ millions) 2,467 1 330 486 1,114 1,325

Total debt ($ millions) 2,467 313 330 486 1,250 1,395

Total equity 7,497 7,497 5,837 2,827 1,266 596

Leverage Ratios:

Debt-to-equity ratio 0.04 0.06 0.17 0.99 2.34

Total liabilities-to-total equity 0.23 0.66 0.54 1.13 2.60 4.96

a. Calculations: Using the ratio definitions on page 4 of this document, calculate the values for times interest earned and the debt-to-equity ratio in 2022.

• Return on equity (ROE): net income/avg stockholders equity (1320/ (31123.5)= 4.24%
• Return on assets (ROA): net income/ average total assets (1320/39999.5) = 11.2%
• Financial leverage (FL) (aka equity multiplier) = average total assets/ average total stockholders equity: ((67580+12419)/2)/(54750+7497)/2 = 39999.5/31123.5=
• Profit margin (PM): net income/ sales revenue= 1320/10603= 12.44%
• Asset Turnover (AT)= sales revenue/ average total assets= 10603/39999.5=26.5%

b. Leverage: Using the figures in the table (including the values that you calculated), describe AMDs capital structure (mix of debt and equity financing), trends and any significant changes.

• Gross profit margin = (sales revenue cost of sales) / sales revenue
  • =(
• Operating profit margin = operating income / sales revenue
• Profit margin (a.k.a., return on sales) = net income / sales revenue
• Accounts receivables turnover = sales revenue / average net accounts receivable
• Inventory turnover = cost of goods sold / average inventory
• PP&E turnover = sales revenue / average net PP&E
• Average # days receivables outstanding = 365 days / receivables turnover
• Average # days to sell inventory = 365 days / inventory turnover
• Current Ratio = current assets / current liabilities
• Quick ratio = (cash + accounts receivable + marketable securities) / current liabilities
• Times interest earned = (net income + income tax expense + interest expense) / interest expense
• Debt-to-equity ratio = total interest bearing liabilities / total stockholder equity

c. Solvency: Evaluate AMDs ability to service its debt and based on results of your analyses of cash flow, income, liquidity, and solvency, state your conclusion regarding the likelihood that AMD will become insolvent.

Evaluating ability to service debt includes evaluating:

1) Ability to pay interest each period

Assess ability to pay interest using the times interest earned ratio; that is, explain what the ratio value reveals about the companys ability to pay interest on its debt.

2) Ability to repay the principal when it matures.

Assess ability to repay principal by identifying the amount of debt that matures in the next five fiscal years and thereafter (using information in the debt note, Note 8 on pages 76-78 of the 2022 10-K pdf file) and then comparing this amount to the companys expected resources in the future--how much cash the firm has, expected future earnings and expected cash flow from operations (based on your analysis of the sustainability and growth in the companys operating cash flows and profits in previous sections of this case).