Hi,

I was wondering if you can help me with some financial accounting work? I need help in computing the numbers for Forecast Values for 2024 for Humana using the information below. I have a sample paper that I have been using as guidance and unsure how to compute the numbers to place into the chart. I have attached the sample paper (pg. 50-51 is the other company's price multiples). I have also attached everything I have so far on my company, HUMANA. My information is on page 49 of that document. I need the following (listed below) to be filled out. Can you please please help me? Thank you!

I have also provided another tutor's solution but unsure if it is right. I need to fill out the chart for FORECAST VALUES & PRICE for 2024 below.

As of 12/31/14 ($m)	HUM	UNH	CI
Share Price	$143.63	$101.09	$102.91
Shares Outstanding	149.60	954.00	259.28
Sales	48,500	130,474	34,914
Net Income	1.147B	34.91B	2.102B
Operating Cash Flow	1.62	8.05	1.99	Average
Price-to-Sales	0.46	0.76	0.80	0.67
Price-to-Earnings	19.31	17.74	13.30	16.78
Price-to-Operating Cash Flows	13.69	12.36	14.00	13.35

I NEED the below:

PLEASE FILL THIS OUT

Forecasted Values	2024	2024 Price
Sales
Net Income
Operating Cash Flow
	Average
	Sum of dividends paid over 10 years
	Total Value

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. OPPORTUNITIES--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 from cash, cash equivalents and accounts receivable. As shown above, INTC has maintained a healthy ability to cover its current liabilities using just cash, cash equivalents and accounts receivable with average of almost 2 times the liquid assets required to cover current liabilities. The final liquidity measure exam