For INTEL CORPORATION a one page ACCOUNTING ANALYSIS will be needed, please read the attached file, (pages 16 to 26 are relevant for this assignment), it will contain the below section . Please use the attached file as an EXAMPLE, please do not copy any information from the attached file, as it is outdated and will come up ascopiedThe response is expected to be well written, logical and well researched.

The section I need the one page accounting analysis on is "Flexibility"

Financial'Reporting'and'Analysis'of:' ! Intel!Corporation! ! Stock'symbol:'INTC' Listed'on'the:' National'Association'of'Securities'Dealers'Automated'Quotation'(NASDAQ)' ' Prepared'for:' Dr.'Clark'Wheatley' Florida'International'University' ' In'partial'fulfillment'of'the'requirements'of'the'course:' ACG6175! ' ' ' ' ' Table!of!Contents! Page! Executive'Summary'.....................................................................................................................................'3 Strategic'Analysis'.........................................................................................................................................'4 Company'Overview'..................................................................................................................................'4 Industry'Analysis'......................................................................................................................................'5 Competitive'Environment'........................................................................................................................'7 Competitive'Advantage'.........................................................................................................................'10 SWOT'Analysis'.......................................................................................................................................'11 Values'of'Key'Personnel'........................................................................................................................'14 Societal'Expectation'..............................................................................................................................'15 Accounting'Analysis'...................................................................................................................................'16 Policies'...................................................................................................................................................'16 Flexibility'................................................................................................................................................'19 Strategy'..................................................................................................................................................'22 Disclosure'Quality'..................................................................................................................................'24 Red'Flags'................................................................................................................................................'25 Distortions'.............................................................................................................................................'26 Financial'Analysis'.......................................................................................................................................'27 Return'on'Equity'Decomposition'...........................................................................................................'27 Profitability'............................................................................................................................................'31 Asset'Management'................................................................................................................................'34 Liquidity'.................................................................................................................................................'36 Debt'&'Coverage'....................................................................................................................................'39 Sustainable'Growth'...............................................................................................................................'42 Forecasting'................................................................................................................................................'43 Sales'.......................................................................................................................................................'44 Income'...................................................................................................................................................'45 Balance'Sheet'........................................................................................................................................'48 Valuation'...................................................................................................................................................'49 Price'Multiples'.......................................................................................................................................'50 Discounted'Free'Cash'Flow'....................................................................................................................'51 Discounted'Abnormal'Earnings'.............................................................................................................'53 Discounted'Abnormal'Return'on'Equity'................................................................................................'54 Earnings'Growth'(Buffet's'Model)'.........................................................................................................'54 Assessment'Of'Solvency'............................................................................................................................'56 Calculation'of'Altman'Z`Score'Model'....................................................................................................'57 Estimate'of'Debt'Rating'.........................................................................................................................'58 Actual'Bond'Rating'................................................................................................................................'59 Conclusion'.................................................................................................................................................'60 ! ' 2' Executive!Summary! ' Based'on'Strategy,'Accounting,'Financial,'Credit'and'Prospective'analysis'of'Intel' Corporation,'it'is'undervalued'at'current'price'levels'and'is'a'BUY.''The'analysis'suggests'Intel's' sustainable'growth'rate'is'12%,'with'an'expected'earnings'per'share'growth'of'35%'over'the' next'10'years'and'year`over`year'value'creation'of'6.5%'to'14.7%.''Finally,'with'85%+'of'the' microprocessor'market,'Intel'is'consumer'monopoly'allowing'it'to'command'a'premium'for'its' products'resulting'in'profit'margins'well'above'industry'norms.' ' 3' Strategic!Analysis! Company+Overview+ ' Intel'Corporation'(Intel)'is'a'multinational'semiconductor'chip'maker'headquartered'in' Santa'Clara,'California.''Founded'by'semiconductor'pioneers'Robert'Noyce'and'Gordon'Moore' and'associated'with'visionary'Andrew'Grove,'Intel'combines'advanced'chip'design'capability' with'state`of`the`art'manufacturing'capability1.''Incorporated'in'1968,'Intel's'core'business'is' designing'and'manufacturing'integrated'digital'technology'platforms'consisting'of' microprocessors'and'chipsets2.''These'platforms'are'used'in'various'computing'applications' including'tablets,'smartphones,'laptops,'desktops,'servers,'automobile'systems,'medical' devices'and'factory'machines.''The'company'also'provides'mobile'components'such'as'WiFi' products,'radio'frequency'transceivers,'Bluetooth'products,'power'management'chips'and' global'navigation'satellite'system'components.''In'addition,'through'various'company' acquisitions,'Intel'offers'network'and'content'security'as'well'as'security'software'products'for' consumer,'mobile,'and'corporate'environments.''Intel'sells'its'products'primarily'to' manufacturers'in'the'computing'and'communications'industries.''Intel'has'over'107,000' employees'and'is'the'largest'publicly'traded'semiconductor'manufacturer'by'revenues'with' sales'of'over'$52'billion'last'year3.''The'following'sections'analyze'the'elements'of'Intel's' success.' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 1 'en.wikipedia.org/wiki/Intel' 2 'www.reuters.com/finance/stocks/companyProfile?symbol=INTC.O' 3 'finance.yahoo.com/q?s=intc' ' 4' Industry+Analysis+ ' In'order'to'understand'the'strategic'avenues'Intel'may'pursue,'one'must'understand' the'context'of'the'semiconductor'industry.''The'number'of'semiconductor'components'used'in' our'daily'lives'is'constantly'expanding.''Chips'form'the'core'of'the'newest'technological'devices' such'as'smartphones'and'tablets.''Semiconductors'are'also'becoming'more'common'in' automotive'and'industrial'markets'as'well'as'consumer'goods'such'as'televisions'and' appliances.''As'a'consequence,'the'semiconductor'industry'has'been'growing'for'over'40'years,' in'spite'of'economic'downturns,'the'bursting'of'the'internet'bubble'and'the'2008-2009' financial'crisis,'with'industry'annual'revenues'of'over'$200'billion4.''As'shown'below,'two' companies'dominate'the'semiconductor'industry5.' ' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 4 'www.pwc.com/gx/en/technology/publications/semiconductor`industry`analysis`and`projections.jhtml' 5 'www.isuppli.com/Semiconductor`Value`Chain/News/Pages/Semiconductor`Sales`Recover`in`2013`;`Micron` Surges`to`Fourth`Place`in`Global`Chip`Market.aspx' ' 5' ' It'should'be'noted,'however,'that'the'semiconductor'space'is'very'complex.''The' semiconductor'industry'is'made'up'of'four'main'product'categories:''memory,'microprocessors,' integrated'circuits'and'complex'"Systems'on'a'Chip",'where'a'single'integrated'circuit'chip'has' an'entire'system's'capability'on'it.''Not'all'manufacturers'participate'in'all'categories.''For' example,'with'the'exception'of'Advanced'Micro'Devices'(AMD),'Intel'dominates'the' microprocessor'segment'with'over'85%'of'the'market'share6.' ' Due'to'fierce'competition'and'new'technologies'that'lower'the'cost'of'producing' semiconductors,'there'is'a'constant'need'for'semiconductor'manufacturers'to'come'up'with' new'and'cheaper'products.''Thus,'the'semiconductor'industry'is'characterized'by'rapid' technological'innovation.''Another'characteristic'of'the'semiconductor'industry'is'the'high' capital'expenditures'needed'to'support'both'growth'and'technological'progress.''Specifically,' the'fixed'costs'and'minimum'scale'associated'with'building'a'new'chip'fabrication'facility'is'in' the'billions7.''Finally,'the'semiconductor'industry'has'been'characterized'as'being'cyclical.''This' occurs'because'semiconductor'manufacturers'face'booms'and'busts'in'semiconductor'demand.'' This'cycle'coincides'with'demand'for'various'electronic'devices'such'as'personal'computers'and' smartphones,'which'is'in'synch'with'consumer'spending'patterns.''In'other'words,'when'the' economy'is'good,'semiconductor'manufacturers'generally'produce'at'capacity.''However,'when' the'economy'is'struggling'and'computer'sales'are'slow,'the'semiconductor'manufacturers' struggle'too8.' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 6 'McGrath,'D.'(2011`08`02).'IDC'cuts'PC'microprocessor'forecast,'EE'Times,'retrieved'from'www.eetimes.com' 7 'www.valueline.com/Stocks/Industries/Industry_Analysis__Semiconductor.aspx' 8 'www.investopedia.com/features/industryhandbook/semiconductor.asp' ' 6' Competitive+Environment+ In'this'section,'Porter's'Model9'is'used'to'analyze'the'semiconductor'industry.''The' ' model'is'based'on'five'forces'including'Rivalry'Among'Competition,'Threat'Of'Substitution,' Threat'Of'New'Entrants,'Bargaining'Power'Of'Buyers'and'Bargaining'Power'Of'Suppliers,'each' of'which'is'addressed'in'the'following'paragraphs.' ! RIVALRY!AMONG!COMPETITION``The'semiconductor'industry'is'characterized'by' intense'rivalry'between'a'few'companies.''Firms'in'the'semiconductor'industry'compete'to' manufacture'products'that'are'smaller,'faster'and'cheaper10.''This'is'the'result'of'a'short' product'cycle'that'is'associated'with'PC'components'such'as'microprocessors'and'memory'that' are'near'obsolescence'shortly'after'being'released.''The'semiconductor'industry'changes' rapidly'as'technology'demands'change.''This'change'keeps'the'industry'competitive'as'each' company'tries'to'get'to'market'first'with'differentiated'products.''The'result'is'an'industry'that' is'always'on'the'cutting`edge.''The'technology'is'constantly'changing'into'something'better'so' it'is'hard'for'one'company'to'remain'on'top.''What'tends'to'happen'with'this'type'of'rivalry'is' that'there'are'several'industry'players'with'similar'size'that'rise'as'the'larger'players.''This' happens'because'no'one'firm'can'always'be'the'one'with'the'newest,'fastest'and'cheapest' product'available11.' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 9 'Porter,'M.'(1996).'\"What'is'strategy?\"'Harvard'Business'Review'74:'61`78.' 10 'www.investopedia.com/features/industryhandbook/semiconductor.asp' 11 'Banks,'W.,'(2011).'Semiconductor'Industry'Analysis'&'Competitive'Analysis.''Goizueta'Business'School,'Emory' University.' ' 7' ' THREAT!OF!SUBSTITUTION``The'threat'of'substitutes'in'the'semiconductor'industry' depends'on'the'segment12.''In'general,'there'is'no'substitute'for'semiconductors'for'use'in' electronic'products'needing'microprocessors'or'memory.''That'being'said,'new'techniques'to' produce'semiconductor'products'are'possible.''However,'the'rivalry'in'the'semiconductor' industry'has'enabled'the'industry'to'change'manufacturing'lines'in'a'very'short'time.''This' ability'takes'away'opportunities'for'others'to'compete'in'the'market.''The'semiconductor' industry'would'respond'quickly'to'any'successful'substitute'process,'limiting'the'advantage'that' particular'substitute'approach'may'have'had.''Additionally,'given'the'research'and' development'costs,'as'well'as'manufacturing'plant'cost'constraints,'semiconductor'firms'can' find'themselves'spending'significant'amounts'of'money'to'research'and'develop'new'products' just'to'find'that'their'competition'has'already'beat'them'to'it.''This'industry'tension,'keeps'the' semiconductor'business'environment'volatile'and'difficult'for'any'substitutes'to'remain' competitive13.' ' THREAT!OF!NEW!ENTRANTS``Setting'up'a'chip'fabrication'facility'requires'billions'of' dollars.''This'high'cost'makes'entry'near'impossible'except'for'the'largest'firms.''Thus,'the' established'semiconductor'firms'have'an'enormous'advantage'over'any'new'entrants.''Another' related'barrier'is'the'short'product'cycle'of'semiconductors.''It'would'require'a'new'entrant'to' the'semiconductor'industry'several'products,'just'to'recoup'the'cost'of'the'manufacturing' plant.''"Fabless\"'chip'companies'that'outsource'manufacturing'have'started'to'be'contenders' in'niche'areas.''However,'the'speed'at'which'the'semiconductor'industry'can'adapt'has'limited' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 12 'www.investopedia.com/features/industryhandbook/semiconductor.asp' 13 'Banks,'W.,'(2011).'Semiconductor'Industry'Analysis'&'Competitive'Analysis.''Goizueta'Business'School,'Emory' University' ' 8' the'success'of'these'"Fabless\"'firms.''Another'potential'threat'is'if'a'business'that'uses' semiconductors'in'their'products'decides'to'backward'integrate'(e.g.,'Apple).''Another' potential'threat'is'indirect'competition'from'governments'that'subsidize'firms'in'their'country,' giving'them'an'unfair'advantage'in'the'market'place.''Finally,'counterfeit'semiconductors'can' also'create'unfair'competitive'forces14.' ' BARGAINING!POWER!OF!BUYERS``The'semiconductor'industry'is'dominated'by'a'small' number'of'large'firms.''On'the'other'hand,'there'are'numerous'buyers'ranging'from'PC'makers' to'electronic'do`it`yourselfers.''In'general,'this'means'buyers'have'little'bargaining'power.'' However,'there'are'some'exceptions.''Large'PC'and'electronic'device'makers'do'have'some' influence'due'to'the'shear'volume'of'products'they'sell.''Their'consistent'large'purchase' volumes'give'some'computer'and'device'manufacturers'(e.g.,'Dell'and'Hewlett`Packard)' considerable'leverage.''Additionally,'these'high'volumes'help'semiconductor'manufactures' lower'their'per'unit'fixed'costs.''Thus,'there'is'a'symbiotic'relationship'between'the' semiconductors'manufactures'and'the'major'computer'and'device'manufacturers14.' ' BARGAINING!POWER!OF!SUPPLIERS``There'are'a'small'number'of'semiconductor' manufacturers'but'a'large'number'of'suppliers.''This'allows'the'semiconductor'firms'to'assert' influence'and'reduce'the'bargaining'power'of'each'individual'supplier'to'a'minimum15.'' However,'for'some'niche'services'such'as'fabrication'plant'operation'or'foundries,'"Fabless"' firms,'who'only'design'chips'and'have'others'firms'manufacturer'them,'are'becoming' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 14 'Banks,'W.,'(2011).'Semiconductor'Industry'Analysis'&'Competitive'Analysis.''Goizueta'Business'School,'Emory' University' 15 'www.investopedia.com/features/industryhandbook/semiconductor.asp' ' 9' increasingly'dependent'on'a'handful'of'large'foundries.''As'the'suppliers'of'cutting`edge' equipment'and'production'skills,'these'foundries'are'gaining'considerable'bargaining'influence.' Competitive+Advantage+ ' Most'types'of'semiconductors'are'fungible,'forcing'semiconductor'manufactures'to' pursue'a'competitive'strategy'based'on'differentiation.''For'differentiation'to'be'successful,'a' firm'must'achieve'three'things:'1)'identify'attributes'of'a'product'that'customers'value,'2)' position'to'meet'the'customer'need'in'a'unique'manner,'and'3)'achieve'differentiation'at'a'cost' lower'than'the'price'the'customer'is'willing'to'pay16.' ' Intel'is'the'world's'fifth'most'valuable'brand'worth'$35'billion'and'its'microprocessors' drive'almost'90%'of'the'world's'personal'computers.''Intel'is'able'to'achieve'this'success'by' dominating'the'above'three'elements'of'a'differentiation'strategy.''First,'Intel'employs' anthropologists'who'study'how'people'use'technology'in'their'lives.''Intel'also'uses'focus' groups'to'find'out'what'customers'think'of'future'scenarios'that'Intel'anticipates'such'as' lifestyle'developments.''This'information'helps'Intel's'designers'and'engineers'understand'what' customer'want.''Second,'Intel'doesn't'just'sell'its'semiconductors.''Intel's'approach'is'to'create' many'types'of'chips'and'software,'and'then'combine'them'into'platforms,'where'a'platform'is' an'integrated'set'of'proven'technologies'designed'from'the'start'to'work'together.''These' platforms'enhance'performance'bringing'added'value'for'consumers.''Finally,'Intel'is'a' 'manufacturing'monster''having'invested'billions'of'dollars'in'manufacturing'plants'that'can' produce'more'processors'in'a'day'than'some'of'Intel'rivals'can'produce'in'a'year.''Intel'can' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 16 'Palepu,'K'&,'Healy,'P'(2007).''Title'Business'Analysis'and'Valuation:'Using'Financial'Statements.''Edition'4.'' Publisher'Cengage'Learning.' ' 10' develop'and'bring'a'product'to'market'faster'than'anyone'else.''By'leveraging'this' manufacturing'capability,'Intel'can'increase'production'to'bring'a'product'to'market'in'large' volumes.''This'agility'allows'Intel'to'deliver'a'product'that'consumers'want'at'price'customers' value17.' SWOT+Analysis+ ' A'SWOT'analysis'is'a'structured'planning'framework'to'evaluate'the'strengths,' weaknesses,'opportunities,'and'threats'for'a'firm.''Specifically,'strengths'address'business' characteristics'that'give'the'firm'an'advantage'over'others;'weaknesses'identify'company' characteristics'that'place'the'firm'at'a'disadvantage'relative'to'others;'opportunities'are' circumstances'the'firm'could'exploit'to'its'advantage;'and'finally,'threats'are'conditions'that' could'cause'trouble'for'the'firm.''The'following'paragraphs'apply'the'SWOT'framework'to'Intel.' ' STRENGTHS``Intel'is'an'industry'leader.''Intel'controls'over'85%'of'the'microprocessor' market'and'over'50%'of'the'graphics'chip'market.''Intel'is'also'a'big'player'in'the'memory'and' motherboard'market.''This'leadership'position'gives'Intel'more'latitude'to'invest'in'research' and'development,'which'translates'into'increased'efficiency'of'design'and'manufacturing.''Intel' also'has'a'strong'company'network.''Intel'controls'the'entire'production'process'for'most'of'its' products.''This'network'of'manufacturing'facilities'and'assembly/test'facilities'gives'Intel'a' powerful'competitive'advantage.''It'allows'Intel'to'have'more'direct'control'over'processes,' quality'control,'product'cost,'volume,'and'timing'of'production.''Further,'Intel'has'strong'brand' recognition.''Intel'is'the'world's'fifth'most'valuable'brand'worth'over'$35'billion.''This'strong' brand'recognition'coupled'with'strong'market'position'enhances'Intel's'investor'confidence.'' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 17 'businesscasestudies.co.uk/intel/' ' 11' Additionally,'Intel'has'strategic'partnerships'with'prominent'technology'players'such'as'IBM,' Microsoft,'LG,'AT&T'and'Nokia.''This'allows'Intel'to'launch'new'services,'reach'more' customers,'and'improve'their'expertise'in'niche'areas.''These'strategic'collaborations'enable' Intel'to'expand'its'customer'base'and'product'portfolio,'enhancing'their'competitive' advantage.''Another'strength'is'that'Intel's'research'and'development'capabilities'are'second' to'none.''The'company'consistently'spends'over'$5'billion'a'year'on'research'and'development.'' The'result'is'a'consistent'line'of'innovative'products'and'advanced'technologies.''Finally,'Intel' offers'a'broad'portfolio'of'microprocessors.''They'have'microprocessors'and'chipsets'for' notebooks,'netbooks'and'desktops.''Intel'also'supplies'products'for'data'center'and'cloud' computing'environments.''Additionally,'Intel'provides'chips'at'variety'of'price'and'performance' points18'to'meet'various'customer'needs.' ' WEAKNESSES``Given'the'fungible'nature'of'semiconductors,'Intel'faces'a'never`ending' battle'with'competitors'trying'to'take'its'leadership'spot.''In'some'niche'areas,'competitors,' such'as'AMD'with'its'64`bit'processor,'are'catching'up'to'Intel.''In'other'areas,'such'as'flash' memory,'companies'like'Samsung'have'overtaken'Intel.''These'challenges'will'likely'continue.'' Another'issue'is'the'volatility'of'the'semiconductor'industry.''Overall,'the'industry'is'very' cyclical'with'the'general'health'of'the'economy'dictating'demand'for'semiconductor' components.''Unexpected'changes'in'the'global'economy'can'have'an'extremely'negative' effect'on'Intel'and'the'semiconductor'industry.''Additionally,'in'Intel's'ongoing'pursuit'to' expand'its'customer'base,'it'often'ventures'into'products'like'wireless'chipsets'and' communications.''While'these'offering'expand'Intel's'portfolio,'most'of'Intel's'revenue'still' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 18 'www.datamonitor.com' ' 12' comes'from'microprocessor'and'motherboard'products.''Thus,'expanding'into'these'non`core' areas,'requires'capital'with'a'disproportionate'return.''Finally,'Intel'is'dependent'on'a'few' customers'for'a'significant'proportion'of'its'revenues.''Intel's'largest'two'customers,'Hewlett` Packard'and'Dell,'account'for'over'a'third'of'its'revenues.''This'high'dependence'on'a'few' customers'could'reduce'Intel's'bargaining'power'and'increases'its'business'risk19.' ' OPPORTUNITIES7`Intel'has'acquired'various'companies'to'expand'beyond'its'traditional' PC'and'server'markets.''For'example,'McAfee,'now'a'wholly`owned'subsidiary'of'Intel,'has'a' suite'of'software`related'security'solutions'and'services'that'help'in'protecting'internet` connected'devices'and'networks'from'malicious'content'and'unsecured'communications.'' Another'expansion'example'is'Intel's'purchase'Infineon's'Wireless'Solutions'business.''This' acquisition'further'strengthened'Intel's'internet'connectivity'strategy'enabling'it'to'offer'a' portfolio'of'products'that'spans'across'a'range'of'wireless'options'from'Wi`Fi'and'3G,'to' WiMAX'and'LTE.''Another'potential'area'for'growth'is'telehealth'and'home'health'monitoring.'' Telehealth'is'a'$10'billion'market'and'growing.''Intel'already'offers'technology`enabled' products'that'are'designed'to'reduce'healthcare'costs'and'connect'people'and'information'to' improve'patient'care'and'safety.''To'get'in'on'this'growing'market,'Intel'has'aligned'with'GE'to' market'and'develop'various'home'based'health'technologies.''Finally,'there'is'increasing' demand'for'cloud'computing'infrastructure.''Intel'is'well'positioned'to'benefit'from'this' growing'market.''Specifically,'Intel'offers'products'that'are'incorporated'into'servers,'storage,' workstations,'and'other'products'that'make'up'the'infrastructure'for'data'center'and'cloud' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 19 'www.datamonitor.com' ' 13' computing'environments.''Intel'has'also'invested'heavily'in'various'cloud'computing' companies20.' ' THREATS``Due'to'its'domination'in'the'microprocessor'market,'Intel'faces'various'issues' including'antitrust'and'unfair'business'practice'inquires'with'regulatory'commissions'in'Europe,' Asia'and'the'U.S.''Further,'staying'one'step'ahead'of'the'competition'is'what'gives'Intel'its' edge.''Because'of'this,'Intel'is'subject'to'various'security'related'issues,'including'theft'and' misuse'of'its'intellectual'property.''If'successful,'these'attempts'could'harm'Intel's'leadership' position'and'reputation20.' Values+of+Key+Personnel+ ' Intel'values'themselves'as'a'global'technology'and'business'leader.''To'this'end,'they' are'committed'to'doing'the'right'things,'the'right'way.''Intel'sees'corporate'responsibility'as' good'business.''In'their'annual'report,'Intel'outlines'their'strategic'priorities'and'performance' on'a'range'of'environmental,'social'and'governance'factors,'including'workplace'practices,' community'engagement,'and'supply'chain'responsibility21.''Innovation'is'an'integral'part'of' Intel's'culture.''At'the'heart'of'this'innovation'and'Intel's'business'success'are'its'people.''One' of'the'six'Intel'Values'is'\"Great'Place'to'Work,\"'which'reinforces'Intel's'strategic'importance'on' investing'in'their'people.''Intel'supports'this'ethos'by'ensuring'a'safe,'respectful'and'ethical' work'environment'that'enables'employees'to'thrive'on'the'job'and'in'their'communities22.'' Intel'also'believes'that'technology'plays'a'fundamental'role'in'finding'solutions'to'the'world's' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 20 'www.datamonitor.com' 21 'www.intel.com/go/responsibility' 22 'www.intel.com/jobs' ' 14' environmental'challenges.''Intel'is'a'recognized'leader'in'sustainability'for'the'ways'they'work' to'minimize'the'environmental'impacts'of'their'operations.''Additionally,'Intel'designs'products' that'are'increasingly'energy'efficient.''In'2012,'for'the'fifth'year'in'a'row,'Intel'was'the'largest' voluntary'purchaser'of'green'power'according'to'the'U.S.'Environmental'Protection'Agency.''To' underscore'the'importance'of'sustainability'to'their'business,'Intel'includes'an'environmental' component'in'the'formula'used'to'determine'the'payout'for'employee'and'executive'variable' compensation.''Intel'has'also'continued'to'collaborate'with'others'to'drive'global'standards'for' products'and'manufacturing'that'ensure'energy`efficient'performance23.''Finally,'Intel'believes' education'is'the'foundation'of'innovation,'and'as'a'technology'company,'Intel'believes'their' success'rests'on'the'availability'of'skilled'workers,'a'healthy'technology'ecosystem,'and' knowledgeable'customers.''Intel'believes'this'requires'access'to'technology'and'quality' education.''Intel'strives'to'transform'education'through'their'Intel'Foundation'to'collaborate' with'governments'and'educators'and'invests'approximately'$100'million'annually'in'education' programs'around'the'world24.' Societal+Expectation+ ' Intel'is'a'business'leader'controlling'over'85'percent'of'the'microprocessor'market'and' has'the'world's'fifth'most'valuable'brand.''As'a'business'leader,'Intel'is'committed'to'the' highest'standards'of'business'ethics'and'corporate'governance.''Intel'captures'these'values'in' their'Code'of'Conduct25'which'serves'as'a'compass'guiding'the'actions'of'Intel'employees,' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 23 'www.intel.com/go/environment' 24 'www.intel.com/educate' 25 'www.intel.com/content/www/us/en/policy/policy`code`conduct`corporate`information.html' ' 15' directors,'and'business'partners,'ensuring'consistent'and'uncompromising'integrity.''Further,' Intel'is'dedicated'to'caring'for'people'and'natural'resources'by'designing'safe,'energy`efficient' products'that'minimize'impact'to'the'environment.''To'this'end,'Intel'has'documented'policies' on'Environmental,'Health,'and'Safety;'Climate'Change;'and'Water'use.''Finally,'Intel'is' committed'to'ethical'and'legal'business,'environmental,'human'rights,'and'labor'practices'on'a' worldwide'basis'with'annual'report'statements'related'to'support'for'Human'Rights,'their' stance'against'Human'Trafficking'&'Slavery'and'policy'on'Conflict'Minerals26.''While'most' company'annual'reports'contain'this'type'of'altruistic'language,'a'review'of'Intel'news'releases' for'the'last'year'suggests'Intel's'actions'are'consistent'with'their'commitments.' Accounting!Analysis! ' The'purpose'of'this'section'is'to'evaluate'the'degree'to'which'Intel's'accounting' captures'its'true'business'practices.''Specifically,'this'section'will'examine'places'where'Intel' has'accounting'flexibility.''Additionally,'this'section'will'evaluate'the'appropriateness'of'Intel's' accounting'policies'and'estimating'techniques.''Together,'these'provide'an'indication'of'the' credibility'behind'Intel's'numbers.' Policies+ Intel's'annual'report'outlines'all'of'its'accounting'policies27'which'include'specific' ' policies'on'Use'of'Estimates,'Fair'Value,'Fair'Value'Hierarchy,'Cash'Equivalents,'Trading'Assets,' Available`for`Sale'Investments,'Non`Marketable'and'Other'Equity'Investments,'Other`Than` Temporary'Impairment,'Derivative'Financial'Instruments,'Measurement'of'Effectiveness,' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 26 'www.intel.com/go/governance' 27 'www.intc.com/intel`annual`report/2013/10K/57`accounting`policies.html' ' 16' Securities'Lending,'Loans'Receivable,'Inventories,'Property,'Plant'and'Equipment,'Goodwill,' Identified'Intangible'Assets,'Product'Warranty,'Revenue'Recognition,'Advertising,'Employee' Equity'Incentive'Plans,'and'Income'Taxes.''Most'of'these'contain''boilerplate''language'that'is' similar'to'the'policies'stated'in'Texas'Instruments'(TXN)'and'Advanced'Micro'Devices'(AMD)' annual'reports.''The'following'paragraphs'highlight'some'of'the'most'notable'policies'as'they' relate'to'the'credibility'of'Intel'financial'statements.' ' Use'of'Estimates'`'Intel'makes'extensive'use'of'estimates'throughout'its'financial' statements.''These'include'subjective'judgments'on'the'valuation'of'non`marketable'equity' investments,'assessments'on'the'recoverability'of'long`lived'assets,'recognition'and' measurement'of'current'and'deferred'income'taxes,'valuation'of'inventory,'and'recognition'&' measurement'of'loss'contingencies.''While'TXN'and'AMD'make'similar'statements,'these'areas' where'estimates'are'used'warrant'further'investigation'when'examining'the'statements.' ' Fair'Value'`'Fair'value'is'the'price'that'would'be'received'from'selling'an'asset'or'paid'to' transfer'a'liability'in'an'orderly'transaction'between'market'participants'at'the'measurement' date28.''When'determining'fair'value,'Intel'considers'the'principal'or'most'advantageous' market'in'which'they'would'transact.''The'TXN'and'AMD'reports'contain'nebulous'statements' about'fair'value.''Intel,'at'least'states'they'use'an'optimistic,'but'perhaps'not'realistic,' estimation'methodology.' ' Inventories'`'Intel'computes'inventory'cost'on'a'first`in,'first`out'basis,'which'is' consistent'with'TXN'and'AMD.''This'industry'first`in,'first`out'inventory'policy'makes'sense' given'the'short'life'of'semiconductor'products.''However,'this'first`in,'first`out'process'suggests' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 28 'www.intc.com/intel`annual`report/2013/10K/57`accounting`policies.html' ' 17' eventually'one'of'these'firms'winds'up'having'some'obsolete'inventory'that'will'have'to'written' off.' ' Goodwill'`'Goodwill'represents'the'excess'of'the'purchase'price'over'the'fair'value'of' net'tangible'and'identifiable'intangible'assets'acquired.''Neither'Intel,'TXN'nor'AMD'amortize' goodwill,'but'test'periodically'for'impairment.''They'all'evaluate'whether'goodwill'has'been' impaired'by'determining'if'the'estimated'fair'value'of'the'acquisition'is'less'than'the'carrying' value.''The'implied'fair'value'is'determined'through'the'use'of'industry'valuation'models.''Any' differences'are'expensed.''This'topic'will'be'discussed'further'under'Long`Lived'Assets.' ' Revenue'Recognition'`'Intel's'revenue'recognition'is'quite'complex'due'to'its'different' business'segments'and'its'variety'of'end`users.''For'example,'Intel'recognizes'revenue'from' products'sold'directly'to'end`consumers'when'delivery'has'occurred.''For'sales'made'to' distributors,'Intel'defers'product'revenue'and'related'costs'of'sales'until'the'distributors'sell' the'merchandise.''This'is'done'primarily'to'give'the'distributor'price'protection'because'of' frequent'sales'price'reductions'and'rapid'technology'obsolescence'in'the'industry.''Intel'also' receives'revenue'from'license'agreements'primarily'with'the'McAfee'segment.''Revenue'from' these'agreements'is'deferred'and'recognized'over'the'performance'of'the'agreement'period.'' Similarly,'revenue'Intel'derives'from'online'subscription'products'is'deferred'and'recognized' over'the'subscription'periods.''For'Intel'professional'services,'revenue'is'recognized'as'services' are'performed.''To'make'revenue'recognition'even'more'complicated,'Intel'has'numerous' relationships'where'all'of'these'elements'are'being'provided'to'a'single'customer.''In'these' cases,'revenue'is'allocated'across'the'separately'identified'deliverables'and'may'be'recognized' or'deferred.''Costs'associated'with'all'of'these'revenue'generating'activities'are'deferred'and' ' 18' amortized'over'the'same'period'that'the'related'revenue'is'recognized29.''While'revenue' recognition'is'not'directly'comparable'for'TXN'and'AMD,'for'basic'components'they'use'similar' revenue'recognition'policies.''Revenue'Recognition'is'an'area'of'accounting'flexibility'that'will' be'discussed'further'in'the'paragraphs'below.' Flexibility+ ' In'the'Management's'Discussion'&'Analysis'section'of'the'annual'report,'Intel'is'very' forthcoming'about'the'extensive'use'of'subjective'estimates'in'their'financial'reporting30.''The' key'areas'include'the'valuation'of'non`marketable'equity'investments,'assessment'on' recoverability'of'long`lived'assets,'recognition'and'measurement'of'current'and'deferred' income'taxes,'the'valuation'of'inventory'and'recognition'and'measurement'of'loss' contingencies.''The'gist'of'these'estimates'are'to'identify'the'fair'value'of'an'asset.''The' estimate'methodologies'provide'ample'accounting'flexibility'for'Intel'and'are'covered'in'more' detail'in'the'following'paragraphs.' ' Non`Marketable'Equity'Investments'`'Intel'invests'in'non`marketable'equity' instruments'of'private'companies'ranging'from'start`ups'to'mature'companies'with'established' revenue'streams'and'business'models.''At'the'end'of'December'2013,'the'value'of'these'types' of'investments'was'valued'at'$2.3'billion.''Since'these'equity'stakes'are'non`marketable,'Intel' has'to'estimate'their'value.''Intel'uses'two'estimating'approaches.''The'first'is'based'on'using' financial'metrics,'such'as'projected'revenue,'projected'earnings,'and'financial'ratios'of' comparable'public'companies.''The'selection'of'companies'for'comparison'is'an'art'since'the' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 29 'www.intc.com/intel`annual`report/2013/10K/57`accounting`policies.html' 30 'www.intc.com/intel`annual`report/2013/10K/28`critical`accounting`estimates.html' ' 19' start`up'often'has'a'unique'product'and'service.''Generally,'however,'it'is'based'on'factors' including'company'size,'growth'rate,'industry,'and'development'stage.''For'more'mature' companies,'Intel'uses'a'discounted'cash'flow'model,'which'requires'significant'estimates' regarding'the'company's'revenue,'costs,'and'discount'rates'based'on'the'risk'profile'of' comparable'companies.''Estimates'of'revenue'and'costs'are'developed'using'available'market,' historical,'and'forecasted'data.''If'Intel'determines'the'fair'value'of'an'investment'is'below'the' carrying'value,'Intel'writes'down'the'investment'to'its'fair'value.''It'is'interesting'to'note'that' these'impairments'of'non`marketable'equity'investments'were'$112'million'in'2013,'$104' million'in'2012'and'$63'million'in'2011.''Assuming'the'estimates'are'correct,'Intel's'losses'on' these'types'of'investments'has'doubled'over'the'2'year'period,'although'the'$112'million'only' represents'about'5%'of'the'entire'$2.3'billion'portfolio.' ' Long`Lived'Assets'`'Property,'Plant,'Equipment,'Goodwill'and'other'Identified' Intangibles'all'follow'an'estimating'approach'similar'to'Non`Marketable'Equity'Investments.'' Specifically,'Intel'tries'to'find'comparables'based'on'groupings'of'like'assets.''If'the'assets'are' directly'producing'a'revenue'stream,'then'a'cash'flow'model'is'used.''However,'even'when'a' cash'flow'model'is'used,'considerable'subjective'judgments'regarding'the'remaining'useful'lives' of'assets'have'to'be'made.''In'general,'the'assumptions'and'estimates'used'to'determine'future' values'and'remaining'useful'lives'of'Intel's'long`lived'assets'are'complex,'subjective'and' influenced'by'numerous'external'factors'such'as'industry'and'economic'trends.''Overall,'these' impairments'are'small'relative'to'the'size'of'Intel.''In'2013,'impairment'charges'were'$17' ' 20' million'($21'million'in'2012'and'$10'million'in'2011).''It'should'be'noted,'however,'these'values' are'small'only'if'you'assume'the'estimates'are'correct31.' ' Income'Taxes'`'Intel'makes'various'estimates'and'judgments'in'determining'the' provision'for'taxes'related'to'calculation'of'tax'credits,'benefits,'and'deductions.''Further' judgments'are'required'in'the'calculation'of'certain'tax'assets'and'liabilities'that'arise'from' differences'in'the'revenue'and'expense'recognition'timing.''Changes'in'the'assumptions'behind' these'estimates'may'result'in'an'increase'or'decrease'to'Intel's'tax'provisions.''These'tax' related'assumptions'also'provide'another'accounting'flexibility'knob.' ' Inventory'`'Semiconductor`based'products'can'be'considered'end`products'at'various' stages'of'development.''Intel'has'to'decide'at'what'point'product'costs'change'from'R&D' expenditures,'which'would'be'expensed'in'the'current'period,'to'cost'of'sales,'which'could'be' deferred.''This'point'may'be'different'for'different'customers'providing'Intel'some'flexibility' regarding'how'to'expense'costs.''Intel's'inventory'valuation'is'another'area'providing' accounting'flexibility.''Their'inventory'is'valued'at'the'lower'of'cost'or'market'based'upon' assumptions'concerning'future'demand'and'market'conditions.''Some'of'the'factors'considered' are:'customer'base,'stage'of'the'product'life'cycle,'consumer'confidence,'customer'acceptance' and'an'assessment'of'selling'price'in'relation'to'product'cost.''If'the'estimated'value'of'the' inventory'is'less'than'the'carrying'value,'Intel'writes'down'the'inventory'and'records'the' difference'as'a'charge'to'cost'of'sales.''A'final'aspect'on'inventory'concerns'obsolete'inventory.'' Intel's'valuation'of'inventory'requires'an'estimation'of'obsolete'inventory.''To'do'this,'a' demand'forecast'is'utilized.''This'is'then'compared'to'inventory'levels.''If'the'demand'forecast' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 31 'www.intc.com/intel`annual`report/2013/10K/28`critical`accounting`estimates.html' ' 21' for'specific'products'is'less'than'inventory'levels,'the'excess'products'are'written'off.''These' estimation'models'are'highly'sensitive'to'assumptions,'giving'Intel'plenty'of'accounting' flexibility'by'designating''obsolete''inventory.' ' Loss'Contingencies'`'This'final'area'also'gives'Intel'considerable'accounting'flexibility.''As' a'leader'in'the'industry,'Intel'is'constantly'subjected'to'various'legal'and'administrative' proceedings'with'potential'financial'claims.''Further,'there'is'always'the'potential'that'product' issues'will'occur'while'they'are'still'under'warranty.''Based'on'these'potential'claims,'Intel' estimates'a'loss'recognized'as'a'charge'to'income,'even'if'the'loss'has'not'occurred'(and'may' not'occur).''This'is'similar'to'making'an'allowance'for'uncollected'accounts.''The'amount'set` aside'for'loss'contingencies'is'highly'subjective'and'is'definitely'another''tool''Intel'could'use'to' smooth'earnings.' Strategy+ ' As'demonstrated'above,'Intel'has'significant'accounting'flexibility.''The'question,' however,'is'whether'or'not'they'are'using'this'flexibility'to'accurately'communicate'Intel's' economic'situation'or'using'it'to'hide'something.''By'comparing'Intel's'policies'to'others'in'the' industry,'we'can'get'a'first'look'at'potential'irregularities.''As'noted'in'the'Policies'section,' Intel's'accounting'policies'are'in'alignment'with'other'companies'in'the'semiconductor'industry' such'as'TXN'and'AMD.' ' Managers'could'also'be'tempted'to'use'this'flexibility'to'manage'earnings.''Intel' managers,'however,'would'not'be'doing'this'to'avoid'triggering'debt'covenants,'since'Intel'has' more'than'enough'cash'to'pay'off'their'long`term'debt.''One'possibility,'however,'is' accounting`based'compensation.''Over'the'last'3`years,'the'top'7'executives'at'Intel'had' ' 22' compensation'of'$187'million.''Most'of'this'was'in'the'form'of'stock'and'stock'options'($130' million)32.''Clearly,'there'is'motive'for'these'managers'to'keep'the'stock'climbing.''Another' motive'for'Intel's'accounting'practices'is'to'minimize'the'tax'burden.''Intel'is'pretty'open'about' this,'stating'that'profits'made'in'another'country'will'stay'there'for'reinvestment'purposes' versus'bring'the'profits'back'to'the'U.S.'where'they'would'be'taxed.' There'were'several'accounting'changes'in'2011'and'201233.''In'2011,'Intel'adopted'a' ' policy'concerning'revenue'recognition'related'to'multiple'deliverables.''This'change'simply' allowed'Intel'to'modify'the'method'by'which'revenue'is'allocated'to'the'separately'identified' deliverables'(recurring'software'subscription'versus'a'one'time'hardware'purchase'by'the'same' customer).''According'to'Intel,'this'change'had'no'material'impact.''There'were'two'other' changes,'one'in'2011'and'one'in'2012,'that'had'no'material'impact,'but'paved'the'way'for'more' accounting'flexibility.''Specifically,'the'changes'allow'Intel'to'assess'qualitative'factors'in' determining'whether'the'fair'value'of'an'asset's'goodwill'and'long`lived'assets'are'going'to'be' less'than'its'carrying'value.''These'qualitative'factors'add'to'the'subjectivity'in'assessing'the'fair' value'of'these'items.' ' Overall,'the'accounting'strategy'used'by'Intel'seems'to'accurately'represent'the' company's'financial'activity'and'health.''Their'policies'and'estimates'seem'realistic'and'no' business'transactions'seem'out'of'place.''While'it'still'remains'true'that'Intel'has'significant' accounting'flexibility,'Intel'uses'a'conservative'approach'in'alignment'with'industry'norms.'' Finally,'the'auditor'(Ernest'&'Young)'has'this'to'say,'"...the'financial'statements'referred'to' ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 32 'www.intc.com/IntelProxy2014/58`execitive`compensation.html' 33 'www.intc.com/intel`annual`report/2013/10K/58`accounting`changes.html' ' 23' above'present'fairly,'in'all'material'respects,'the'consolidated'financial'position'of'Intel' Corporation'at'December'28,'2013'and'December'29,'2012".''Additionally,'they'state,'"Intel' Corporation'maintained,'in'all'material'respects,'effective'internal'control'over'financial' reporting'as'of'December'28,'2013".' Disclosure+Quality+ ' Annual'reports'can'be'over'a'100'pages.''The'latest'from'Intel'is'140'pages.''Within' those'pages,'companies'have'a'choice'on'making'it'more'or'less'easy'for'someone'to'assess'the' company's'accounting'quality'and'use'the'statements'to'understand'the'business'reality'of'the' firm.''Overall,'Intel'appears'to'make'an'attempt'to'be'as'transparent'as'possible'with'their' financial'reporting.''While'some'aspects'of'the'accounting'procedures'are'subjective'and' accounting'changes'made'in'2011'and'2012'increase'this'qualitative'approach,'this'seems'to' have'been'done'to'increase'the'level'of'fidelity'into'specific'elements'of'revenue'streams' versus'just'aggregating'them'in'one'number'that'is'reported.' ' The'Executive'Letters'accompanying'Intel's'annual'report'are'primarily'cheerleading'and' motivational'speech.''However,'the'Management's'Discussion'and'Analysis'of'Financial' Condition'and'Results'(MD&A)'section'is'comprehensive'and'detailed.''The'MD&A'does'an' excellent'job'of'laying'out'the'industry'conditions,'Intel's'competitive'position'and'Intel's'plans' for'the'future.' ' Early'in'the'MD&A'section,'Intel'lays'out'the'Critical'Accounting'Estimates.''While'this'is' also'true'for'TXN'and'AMD,'Intel'provides'more'than'GAAP'"requires'us'to'make'estimates'and' judgments".''Intel'characterizes'the'main'areas'where'estimates'and'judgments'are'involved' and'then'provides'detailed'information'on'each'of'these'areas.''Further,'Intel'makes'use'of'the' ' 24' footnotes'to'explain'the'accounting'policies'and'assumptions'for'the'way'the'data'are' presented.''Intel'also'does'a'good'job'of'explaining'the'rationale'behind'various'accounting' changes'and'their'impact'on'the'presentation'of'financial'results.' ' Intel'has'grown'beyond'just'being'a'semiconductor'chip'maker.''The'company'also' provides'mobile'components'such'as'WiFi'products,'radio'frequency'transceivers,'Bluetooth' products,'power'management'chips'and'global'navigation'satellite'system'components.''In' addition,'through'various'company'acquisitions,'Intel'now'offers'network'and'content'security' as'well'as'security'software'products'for'consumer,'mobile,'and'corporate'environments.''Each' of'these'segments'has'different'accounting'practices.''Intel'provides'excellent'discussion'and' breaks'down'the'overall'top`line,'providing'insight'into'the'health'of'each'of'its'business' segments.' ' Finally,'Intel'has'an'extensive'Investor'Relations'site.''It'contains'the'latest'Intel' corporate'events,'news'releases'and'financial'statements.''Further,'it'contains'an'archive'of' past'news'and'financial'releases.''It'is'also'the'location'where'Intel'posts'the'latest'quarterly' financial'releases.''Overall,'Intel'has'a'high'quality'of'disclosure'and'does'a'great'job'of' explaining'their'assumptions,'accounting'policies'behind'the'numbers'throughout'their' financial'statements;'and'then'making'this'information'available.' Red+Flags+ ' As'just'noted,'the'Intel'Financial'Statements'provide'a'very'high'level'of'disclosure' quality.''Based'on'this,'there'are'few'areas'where'the'accounting'should'be'called'into' question.''Specifically,'there'were'no'unexplained'increases'in'contingencies'or'significant'off` ' 25' balance`sheet'arrangements.''Further,'the'only'changes'in'accounting'were'to'increase'the' financial'transparency'related'to'revenue'streams'in'different'business'segments.' ' Before'discounting'any'potential'Red'Flags,'a'couple'of'quantitative'checks'can'be' performed.''The'following'table'shows'a'comparison'of'2009'to'2013'for:'accounts'receivable'in' relation'to'sales'increases,'inventories'in'relation'to'sales'increases,'reported'income'and'cash' flow'from'operating'activities'and'reported'income'and'taxable'income.' Accoutning Analysis Indicators Receivables to Sales Inventories to Sales Net Income to Cash Flow Net Income to Pre-Taxable Income ' 2009 2010 2011 2012 6.47% 8.36% 31.9% 76.6% 6.57% 8.61% 55.6% 71.4% 6.82% 7.59% 53.9% 72.8% 7.57% 8.87% 49.7% 74.0% 2013 6.99% 7.92% 46.8% 76.3% ' The'first'indicator,'Receivables'to'Sales,'can'provide'insight'on'if'the'company'is'relaxing' its'credit'policies'or'artificially'loading'up'its'distribution'channels.''The'above'numbers'for'Intel' don't'suggest'this'happening.''The'second'indicator,'Inventories'to'Sales,'could'be'an'indicator' that'demand'for'products'are'slowing.''Again,'the'above'numbers'don't'suggest'this'is'the'case.'' The'third'indicator,'Net'Income'to'Cash'Flow,'could'indicate'changes'in'the'firm's'accrual' estimates.''It'is'assumed'that'the'2009'number'is'due'to'the'recession;'otherwise'the'numbers' are'fairly'consistent'year`over`year.''Finally,'Net'Income'to'Pre`Tax'Income'increases'could' indicate'that'financial'reporting'to'shareholders'has'become'more'aggressive.''All'of'these' qualitative'and'quantitative'measures'provide'no'warning'of'Red'Flags'on'Intel's'Financial' Statements.' Distortions+ ' The'purpose'of'this'section'was'to'evaluate'the'degree'to'which'Intel's'accounting' captures'its'true'business'practices'and'to'provide'an'indication'of'the'credibility'behind'Intel's' ' 26' numbers.''After'analyzing'Intel's'Financial'Statements,'the'analysis'suggests'the'data'in'Intel's' financial'reports'clearly'and'accurately'reflect'the'financial'health'of'the'firm.''There'were'no' questionable'practices'that'would'lead'one'to'believe'that'Intel's'management'was'trying'to' misrepresent'the'numbers.''All'changes'in'accounting'were'documented'with'the'rationale'and' the'impact'on'the'financial'statements.''While'Intel's'accounting'policies'provide'ample' accounting'flexibility,'the'accounting'analysis'suggests'Intel'is'applying'these'policies' responsibly'while'documenting'their'actions'and'logic'in'the'footnotes.''Because'of'the'above' findings,'no'adjustments'to'the'financial'statements'are'necessary.' Financial!Analysis! ' The'financial'statements'of'a'company'contain'information'that'reveal'the'company's' financial'position.''This'information'can'be'combined'using'various'ratios'to'assess'the' company's'financial'health.''This'section'is'focused'on'using'the'financial'information'in'Intel's' financial'statements,'as'well'as'Intel's'primary'competitors'(Advanced'Micro'Devices'(AMD)'&' Texas'Instruments'(TXN)),'to'see'where'Intel'stands'with'respect'to'those'competitors'and'the' industry'(average'of'INTC,'AMD'&'TXN).''The'key'areas'examined'are:'Return'on'Equity' Decomposition,'Profitability,'Asset'Management,'Liquidity,'Debt'&'Coverage'and'Sustainable' Growth.''The'data'examined'covers'31'Dec'2004'to'31'Dec'2013.' Return+on+Equity+Decomposition+ ' This'section'will'breakdown'Intel's'Return'on'Equity'(ROE)'into'its'building'blocks'to' yield'a'deeper'understanding'of'Intel's'strategic,'investment'and'financing'decisions.''These' basic'building'blocks'for'Intel'will'also'be'compared'to'the'build'blocks'for'two'of'Intel's' competitors'(TXN'and'AMD).''The'breakdown'of'ROE'is'as'follows:' ' 27' ROE' ='(Income/Equity)' ' ' ='(income/assets)'x'(assets/equity)' ' ='(income/sales)'x'(sales/assets)'x'(assets/equity)' The'following'tables'show'the'ROE'breakdown'for'Intel'as'well'as'TXN'and'AMD.' INTC ($ millions) Net Income Sales Net Profit Margin (ROS) Total Assets Asset Turnover Return on Assets Shareholders Equity Financial Leverage Return on Equity 2004 7,516 34,209 21.97% 48,143 0.71 15.61% 38,579 1.25 19.48% AMD ($ millions) Net Income Sales Net Profit Margin (ROS) Total Assets Asset Turnover Return on Assets Shareholders Equity Financial Leverage Return on Equity 2004 TXN ($ millions) Net Income Sales Net Profit Margin (ROS) Total Assets Asset Turnover Return on Assets Shareholders Equity Financial Leverage Return on Equity 2004 ' 91 5,001 1.82% 7,844 0.64 1.16% 3,010 2.61 3.03% 1,861 12,580 14.79% 16,299 0.77 11.42% 13,063 1.25 14.25% 2005 2006 8,664 38,826 22.31% 48,314 0.80 17.93% 36,182 1.34 23.95% 2005 2007 5,044 35,382 14.26% 48,368 0.73 10.43% 36,752 1.32 13.72% 2006 165 5,848 2.83% 7,288 0.80 2.27% 3,352 2.17 4.94% 2005 2007 -166 5,649 -2.94% 13,147 0.43 -1.26% 5,785 2.27 -2.87% 2006 2,324 13,392 17.35% 15,063 0.89 15.43% 11,937 1.26 19.47% 6,976 38,334 18.20% 55,651 0.69 12.54% 42,762 1.30 16.31% 5,292 37,586 14.08% 50,715 0.74 10.43% 39,088 1.30 13.54% 2008 -3,379 -3,098 6,013 5,808 -56.19% -53.34% 11,550 7,675 0.52 0.76 -29.26% -40.36% 2,990 -82 3.86 -93.60 -113.01% 3778.05% 2007 4,341 14,195 30.58% 13,930 1.02 31.16% 11,360 1.23 38.21% 2008 2,657 13,835 19.20% 12,667 1.09 20.98% 9,975 1.27 26.64% 2008 1,920 12,501 15.36% 11,923 1.05 16.10% 9,326 1.28 20.59% 2009 2010 4,369 35,127 12.44% 53,095 0.66 8.23% 41,704 1.27 10.48% 2009 2011 11,464 43,623 26.28% 63,186 0.69 18.14% 49,430 1.28 23.19% 2010 376 5,403 6.96% 9,078 0.60 4.14% 648 14.01 58.02% 2009 2011 471 6,494 7.25% 4,964 1.31 9.49% 1,013 4.90 46.50% 2010 1,470 10,427 14.10% 12,119 0.86 12.13% 9,722 1.25 15.12% 12,942 53,999 23.97% 71,119 0.76 18.20% 45,911 1.55 28.19% 491 6,568 7.48% 4,954 1.33 9.91% 1,590 3.12 30.88% 2011 3,228 13,966 23.11% 13,401 1.04 24.09% 10,437 1.28 30.93% 2,236 13,697 16.32% 20,497 0.67 10.91% 10,952 1.87 20.42% 2012 11,005 53,341 20.63% 84,351 0.63 13.05% 51,203 1.65 21.49% 2012 -1,183 5,422 -21.82% 4,000 1.36 -29.58% 538 7.43 -219.89% 2012 1,759 12,690 13.86% 20,021 0.63 8.79% 10,961 1.83 16.05% 2013 9,620 52,708 18.25% 92,358 0.57 10.42% 58,256 1.59 16.51% ' 2013 -83 5,299 -1.57% 4,337 1.22 -1.91% 544 7.97 -15.26% ' 2013 2,162 12,205 17.71% 18,938 0.64 11.42% 10,807 1.75 20.01% ' What'follows'is'a'comparison'of'Net'Profit'Margin,'Asset'Turnover'and'Financial' Leverage'across'Intel,'TXN,'AMD'as'well'as'the'industry'average.''Return'on'Equity'and'Return' on'Assets'will'not'be'covered'here'since'they'will'be'covered'in'a'later'section.''The'following'is' the'data'for'Net'Profit'Margin'for'the'10'year'period.' Net Profit Margin INTC AMD TXN Industry 2004 2005 2006 22% 22% 14% 2% 3% -3% 15% 17% 31% 13% 14% 14% 2007 2008 2009 2010 18% 14% 12% 26% -56% -53% 7% 7% 19% 15% 14% 23% -6% -8% 11% 19% 2011 2012 2013 24% 21% 18% 7% -22% -2% 16% 14% 18% 16% 4% 11% ' ' 28' 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 INTC -10% AMD TXN -20% Industry -30% -40% -50% -60% -70% ' ' Net'Profit'Margin'is'an'indication'of'how'much'the'firm'keeps'as'profits'for'every'dollar' in'revenue.''The'above'chart'is'not'as'clear'cut'as'Gross'Profit'Margin.''However,'the'above' chart'does'show'that'Intel'consistently'leads'the'industry'over'the'entire'timeframe.''Overall,' Intel'is'consistent'with'TXN'over'this'timeframe'with'an'average'Gross'Profit'Margin'of'19%.'' This'consistency'lends'strong'credibility'to'Intel's'management'that'they'will'continue'to' convert'sales'in'to'profits.' ' Next,'the'Asset'Turnover'data'for'the'10'year'period'is'as'follows.' Asset Turnover INTC AMD TXN Industry 2004 2005 0.71 0.64 0.77 0.71 0.80 0.80 0.89 0.83 2006 2007 2008 2009 2010 2011 2012 0.73 0.43 1.02 0.73 0.69 0.52 1.09 0.77 0.74 0.76 1.05 0.85 0.66 0.60 0.86 0.71 0.69 1.31 1.04 1.01 0.76 1.33 0.67 0.92 0.63 1.36 0.63 0.87 2013 0.57 1.22 0.64 0.81 ' ' 29' 1.60 1.40 1.20 1.00 INTC AMD 0.80 TXN Industry 0.60 0.40 0.20 0.00 2004 ' 2005 2006 2007 2008 2009 2010 2011 2012 2013 ' The'Asset'Turnover'indicates'how'many'sales'dollars'the'firm'is'able'to'generate'for' each'dollar'in'assets.''At'first'glance,'this'appears'to'be'the'first'indicator'where'Intel'does'not' dominate'or'at'least'perform'in'the'top'of'the'industry.''This'seems'at'odds'with'all'of'the'other' data'and'may'be'the'result'of'several'factors.''Specifically,'as'noted'in'the'Strategy'section,'Intel' dominates'the'semiconductor'industry'through'a'strategy'of'differentiation'where'the' company'spends'over'$5'billion'a'year'on'research'and'development.''Additionally,'Intel'is'a' semiconductor'manufacturing'powerhouse.''While'Intel'may'be'tremendously'successful'in' manufacturing'state`of`the`art'semiconductors'at'scale,'it'isn't'cheap.''The'above'data'could' suggest'that'it'is'expensive'to'be'and'stay'at'the'top.' ' The'final'indicator'will'be'Financial'Leverage'with'data'for'the'10'year'period'as'follows.' Financial Leverage INTC AMD TXN Industry 2004 1.25 2.61 1.25 1.70 2005 1.34 2.17 1.26 1.59 2006 1.32 2.27 1.23 1.60 2007 1.30 3.86 1.27 2.14 2008 2009 1.30 1.27 1.28 1.29 1.25 1.26 2010 1.28 4.90 1.28 2.49 2011 1.55 3.12 1.87 2.18 2012 1.65 7.43 1.83 3.64 2013 1.59 7.97 1.75 3.77 ' ' 30' 9.00 8.00 7.00 6.00 INTC 5.00 AMD TXN 4.00 Industry 3.00 2.00 1.00 0.00 2004 ' 2005 2006 2007 2008 2009 2010 2011 2012 2013 ' Financial'leverage'indicates'how'many'dollars'of'assets'the'firm'is'able'to'deploy'for' each'dollar'invested'by'shareholders.''As'can'be'seen'in'the'chart,'AMD's'financial'leverage'is' quite'volatile'and'two'years'(2008'and'2009)'had'to'be'removed'to'accurately'see'the'data'for' Intel'and'TXN.''Intel's'financial'leverage,'on'the'other'hand,'is'very'consistent'over'the'10`year' period,'but'did'see'a'jump'in'2011'associated'with'various'acquisitions.''This'suggests'Intel' follows'a'very'disciplined'approach'to'using'leverage'for'growth.' Profitability+ ' For'profitability,'three'ratios'are'investigated:''Return'on'Equity,'Return'on'Assets'and' Gross'Profit'Margin.''The'Return'on'Equity'data'for'the'10'year'period'is'shown'below.' Return on Common Equity INTC AMD TXN Industry NA = Not available 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NA 23% 14% 18% 13% 11% 25% 27% 23% 18% NA 5% -4% -77% -213% 107% 57% 38% -111% -15% NA 19% 37% 25% 20% 15% 32% 21% 16% 20% NA 16% 16% -12% -60% 45% 38% 29% -24% 7% ' ' 31' 150% 100% 50% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 INTC AMD -50% TXN Industry -100% -150% -200% -250% ' ' Return'on'Equity'(ROE)'is'a'comprehensive'indicator'of'a'firms'performance'because'it'provides' an'indication'of'how'well'managers'are'employing'the'funds'invested'by'the'firm's'shareholders'to' generate'returns.''The'above'data'show'INTC'had'a'positive'ROE'over'the'entire'timeframe.'' Additionally,'the'INTC'average'ROE'over'the'time'frame'was'19%'compared'with'the'industry'average'of' 6%.''Also'of'note'is'that'the'variability'of'the'INTC'ROE'is'lower'than'both'TXN'and'AMD.''This'low' variability,'positive'ROE'suggests'a'well'thought'out'strategy'is'being'consistently'applied'by'INTC' management.' ' Next,'the'Return'on'Assets'data'for'the'10'year'period'is'as'follows.' Return on Total Assets INTC AMD TXN Industry NA = Not available 2004 NA NA NA NA 2005 2006 18% 10% 7% 3% 15% 30% 13% 14% 2007 2008 2009 2010 13% 10% 9% 20% -22% -27% 21% 9% 20% 16% 4% 0% 15% 15% 2011 2012 2013 19% 14% 11% 14% -23% 2% 13% 9% 11% 15% 0% 8% ' ' 32' 40% 30% 20% INTC 10% AMD TXN 0% Industry 2005 2006 2007 2008 2009 2010 2011 2012 2013 -10% -20% -30% ' ' Return'on'Assets'(ROA)'tells'how'much'profit'a'company'is'able'to'generate'for'each'dollar'of' assets'invested.''ROA'is'generally'seen'as'a'barometer'of'how'efficient'management'is'at'using'its'assets' to'generate'earnings.''The'above'data'show'INTC'had'a'positive'ROA'over'the'entire'timeframe.'' Additionally,'the'INTC'average'ROA'over'the'time'frame'was'14%'compared'with'the'industry'average'of' 9%.''Also'of'note,'is'that'the'variability'of'the'INTC'ROA'is'lower'than'both'TXN'and'AMD.''Similar'to'the' ROE'insight,'this'low'variability,'positive'ROA'is'a'confirmation'indicator'suggesting'a'well'thought'out' strategy'is'being'consistently'applied'by'INTC'management.' ' The'final'profitability'measure'examined'in'this'section'is'Gross'Profit'Margin.''The'Gross'Profit' Margin'data'for'the'10'year'period'is'as'follows.' Gross Profit Margin INTC AMD TXN Industry 2004 2005 72% 64% 57% 64% 71% 62% 59% 64% 2006 2007 2008 65% 63% 59% 63% 65% 55% 61% 60% 68% 59% 59% 62% 2009 70% 62% 57% 63% 2010 77% 48% 60% 62% 2011 2012 74% 49% 57% 60% 76% 44% 57% 59% 2013 74% 40% 60% 58% ' ' 33' 90% 80% 70% 60% INTC 50% AMD TXN 40% Industry 30% 20% 10% 0% 2004 ' 2005 2006 2007 2008 2009 2010 2011 2012 2013 ' Gross'Profit'Margin'is'an'indication'of'the'extant'to'which'revenues'exceed'direct'costs' associated'with'sales.''Gross'Profit'Margin'is'influenced'by'two'factors:'1)'the'price'premium'that'a' firm's'products'command'in'the'market'place,'and'2)'the'efficiency'of'the'firm's'procurement'and' product'process.''The'above'data'show'INTC'consistently'outpaced'the'its'competitors'on'Gross'Profit' Margin'over'the'entire'timeframe.''Specifically,'INTC'surpassed'the'Industry'average'by'10'percentage' points.''INTC'dominance'on'this'measure'is'attributable'to'their'brand'value'which'allows'them'to' command'a'premium'for'INTC'products'and'their'superior'manufacturing'processes'that'allow'them'to' keep'costs'as'low'as'possible.' Asset+Management+ ' For'asset'management,'two'ratios'are'investigated:''Operating'Working'Capital' Turnover'and'Inventory'Turnover.''The'Operating'Working'Capital'Turnover'data'for'the'10'year' period'is'shown'below.' Operating Working Capital Turnover INTC AMD TXN Industry 2004 2.0 3.4 1.7 2.4 2005 2.9 3.6 1.7 2.7 2006 3.2 4.4 2.2 3.3 2007 2.8 4.5 2.5 3.3 2008 3.7 11.8 2.8 6.1 2009 2.8 2.1 2.1 2.4 2010 2.2 3.1 2.5 2.6 2011 4.2 3.2 2.4 3.3 2012 3.3 5.6 1.9 3.6 2013 3.1 2.7 1.9 2.6 ' ' 34' 14.0 12.0 10.0 INTC 8.0 AMD TXN 6.0 Industry 4.0 2.0 0.0 2004 ' 2005 2006 2007 2008 2009 2010 2011 2012 2013 ' Operating'Working'Capital'Turnover'compares'the'use'of'working'capital'to'the' generation'of'sales'over'a'specified'period.''The'capital'is'used'to'fund'operations'and'purchase' inventory.''These'are'then'converted'into'sales'revenue'for'the'company.''In'a'general,'the' higher'the'working'capital'turnover,'the'better.''The'above'data'are'inconclusive'as'to'a'firm' that'best'uses'Operating'Working'Capital.''It'should'be'noted,'however,'that'INTC'is'the'only' firm'with'a'positive'trend'over'the'10'year'time'frame.''This'suggests'they'are'increasing'their' ability'maximize'Operating'Working'Capital'over'time.' ' Next,'the'Inventory'Turnover'data'for'the'10'year'period'is'as'follows.' Inventory Turnover INTC AMD TXN Industry 2004 13.1 5.7 10.0 9.6 2005 12.4 15.0 10.5 12.7 2006 2007 8.2 11.4 6.9 7.3 9.9 9.8 8.3 9.5 2008 2009 2010 2011 2012 2013 10.0 12.0 11.6 13.2 11.3 12.6 8.9 9.5 10.3 13.8 9.6 6.0 9.1 8.7 9.2 7.7 7.2 7.1 9.3 10.1 10.4 11.5 9.4 8.6 ' ' 35' 16.0 14.0 12.0 10.0 INTC AMD 8.0 TXN Industry 6.0 4.0 2.0 0.0 2005 ' 2006 2007 2008 2009 2010 2011 2012 2013 ' Inventory'Turnover'shows'how'many'times'a'firm's'inventory'is'sold'and'replaced'over'a' specified'period.''A'low'turnover'implies'poor'sales'and'excess'inventory.''A'high'ratio,'on'the' other'hand,'implies'strong'sales.''A'low'turnover'can'be'especially'troublesome'if'products'are' perishable'and'can'deteriorate'as'they'sit'and'wait'to'be'sold.''The'above'data'again'show'the' ability'of'INTC'to'effectively'gauge'market'demand'and'not'manufacture'semiconductor' products'that'will'be'out`of`date'within'18'months.' Liquidity+ ' For'liquidity,'three'ratios'are'investigated:''Current'Ratio,'Quick'Ratio'and'Operating' Cash'Flow'Ratio.''The'Current'Ratio'data'for'the'10'year'period'is'shown'below.' Current Ratio INTC AMD TXN Industry 2004 3.0 1.7 5.3 3.3 2005 2.3 2.0 3.9 2.7 2006 2.1 1.4 3.8 2.4 2007 2.8 1.5 3.4 2.6 2008 2.5 1.1 3.8 2.5 2009 2.8 1.9 3.9 2.9 2010 3.4 2.1 3.6 3.0 2011 2.2 1.8 2.2 2.1 2012 2.4 1.6 2.4 2.2 2013 2.4 1.8 2.9 2.4 ' ' 36' 4.5 4.0 3.5 3.0 INTC 2.5 AMD TXN 2.0 Industry 1.5 1.0 0.5 0.0 2005 ' 2006 2007 2008 2009 2010 2011 2012 2013 ' The'Current'Ratio'is'a'widely'accepted'index'of'a'firm's'short`term'liquidity.''Analysts' generally'view'a'current'ratio'of'more'than'one'to'be'an'indication'that'the'firm'can'cover'its' current'liabilities'from'the'cash'realized'from'its'current'assets.''As'shown'above,'INTC'has' maintained'a'healthy'ability'to'cover'its'current'liabilities'using'current'assets'with'average'of' 2.5'times'the'amount'of'current'assets'required'to'cover'current'liabilities.' ' Next,'the'Quick'Ratio'data'for'the'10'year'period'is'as'follows.' Quick Ratio INTC AMD TXN Industry 2004 2.5 1.0 4.2 2.6 2005 1.8 1.5 3.0 2.1 2006 1.5 0.9 2.6 1.7 2007 2.1 1.0 2.3 1.8 2008 1.7 0.6 2.3 1.5 2009 2.1 1.5 2.6 2.1 2010 2.7 1.6 2.3 2.2 2011 1.5 1.5 1.3 1.4 2012 1.7 1.2 1.5 1.5 2013 1.8 1.2 1.8 1.6 ' ' 37' 3.5 3.0 2.5 INTC 2.0 AMD TXN 1.5 Industry 1.0 0.5 0.0 2005 ' 2006 2007 2008 2009 2010 2011 2012 2013 ' The'Quick'Ratio,'sometimes'referred'to'as'the'acid'test,'is'similar'to'the'Current'Ratio' but'only'includes'cash,'cash'equivalents'and'accounts'receivable'as'part'of'the'current'assets.'' For'INTC,'it'is'safe'to'include'accounts'receivable'since'the'creditworthiness'of'INTC's'largest' customers'(Dell'and'Hewlett`Packard)'are'beyond'dispute.''Similar'to'the'Current'Ratio,'a'quick' ratio'of'more'than'one'is'an'indication'that'the'firm'can'cover'its'current'liabilities