Week 5 Final Paper
The name of the company chosen is Advanced Micro Devices and so, the company on which I have chosen to write this paper. Advanced Micro Devices is engaged in the business of development of the computer processors and also has its related technology for the business and the customer markets. The company used to outsource its manufacturing practices initially and manufactures its own processors. The products that the company sells includes microprocessors, motherboard chipsets, embedded processors etc. (AMD, 2018). This write up shall include the financial analysis, the pro forma financial statements of the company along with the analysis of the ratios.
When it comes to making a decision of investing into the company, an investor would always consider the facts of profitability of the company, he would always want to make an investment in the company that would give him results and that would yield some benefits in future for him. He should be able to get some return on regular basis and also, earn some gain when he sells his investment. It is for this purposes ratio analysis are used so that the company’s efficiency, its profitability could be determined.
The first ratio we shall talk about is the gross profit ratio which talks about the profitability of the company after deducting the cost of goods sold from the net revenue that the company has earned during the year (Accounting for management, 2018). The calculated ratio shows an increase which is good for the company. The net ratio is Net profit ratio which talks about the profitability of the company after deducting all of the expenses from the net revenue that the company has earned during the year (Accounting for management, 2018). The calculated ratio shows an increase which is good for the company. The next ratio is Assets turnover ratio which shows the efficiency of the company to generate sales from its assets (My accounting course, 2018). The calculated ratio shows an increase which is good for the company. Inventory turnover ratio shows the number of times inventory is converted into sales. The calculated ratio shows an increase which is good for the company. Current ratio shows the ability of the company to meet its short term liabilities (My accounting course, 2018). The calculated ratio shows a decrease which is bad for the company. Quick ratio shows the ability of the company to meet its short term liabilities (My accounting course, 2018). The calculated ratio shows a decrease which is bad for the company. Debt equity ratio shows how much levered the company is (Corporate finance institute, 2018). The calculated ratio shows a decrease which is bad for the company. Ratio of current liabilities to proprietor’s funds is ratio shows the relationship between the current liabilities and the proprietors funds (Accounting explanation, 2018). It shows a decrease when compared with the previous year. Earnings per share shows the earnings that the company earns on each share (Economic times, 2018). The ratio shows an increase which is good. Price to earnings ratio shows the relationship between the share price and the earnings per share of the company (Corporate finance institute, 2018). The ratio shows an increase which is good.
The company is exposed to the following risks:
- The aggressiveness of the company along with its dominance limits its ability to compete effectively in the market
- The companies relies on the purchases from the third party ad hence, that could limit its sales if that vendor fails to supply goods
- The success of the company depends on the ability of it to introduce new products into the market and that too on timely basis with new features and different levels of performance. This add on to the value to the customer while supporting and coinciding with some of the significant industry transitions.
The statement of profit or loss shows the amount of the profit that the company has earned during the regular course of the business after all of the expenses have been duly met. The more this amount is, the better it is for the company. The Annual report of the company shows that it has earned $43 million during 2017 as compared with a loss of $497 million during the previous year of 2016. The Balance sheet of the company states the financial positon of the company as on the date. The Assets have increased from $3321 to 3540 million but so have the liabilities.
The statement of cash flows comprise of mainly 3 items. The first being the cash flows from operating activities which deals with the cash received or paid during the year which are related with the regular receipt of money from the customers and the payment made to the suppliers on account of the purchase of raw materials etc. the company has reported an amount of $68 million as compared with $90 million in the previous year. The second item is the cash flows from the investing activities which deals with the company making an investment into the fixed assets for it. These assets are used to generate revenue for the company. The company has reported an outflow of $114 million as compared with $267 million in the previous year. The third item is the cash flows from the financing activities which deals with the issue of shares by the company. This money received by the company is used for the purposes of investing into the working capital or for further investing outside of the company. The company has reported an outflow of $33 million as compared with $122 million in the previous year.
The net total of all of these activities together comes out to be an outflow of $1185 million as compared with $1264 million during the previous year.
The pro forma financial statements are the financial statements that are prepared on the basis of some pre assumed events or assumptions. These are not actual financial statements. These could be used by an investor to make some future decisions with regard to make an investment into the company.
In the end it could be stated that the revenue of the company has though improved when compared with the current year. But the net profit of the company has reduced but the gross profit of the company has increased when compared with the previous year. The majority of the ratios calculated shows an improvement during the year 2017 when compared with the previous year. But the company needs to work hard towards improving its revenue for the current year since if the company needs to have some profit in hand after all the indirect expenses have been paid, so if this is less then the company shall face issues in the future. With regard to making an investment in this company is concerned, it can serve to be a viable option since this company would only improve in the future.
Ratios:
The following table shows the calculated ratios:
| (Amounts in $ in millions) | |||
| Particulars | 2017 | 2016 | |
| Profitability: | |||
| Gross profit ratio: | 0.342090448 | 0.233614232 | |
| Gross profit | 1,823.00 | 998.00 | |
| Net sales | 5,329.00 | 4,272.00 | |
| Net profit ratio: | 0.008069056 | -0.116338951 | |
| Net profit | 43.00 | -497.00 | |
| Net sales | 5,329.00 | 4,272.00 | |
| Asset Management/Activity ratios: | |||
| Accounts receivables turnover ratio: | 14.99015471 | 5.979006298 | |
| 0 | |||
| Net sales | 5,329.00 | 4,272.00 | |
| Average Accounts receivables | 355.50 | 422.00 | |
| Inventory turnover ratio: | 7.153020134 | 5.979006298 | |
| Net sales | 5,329.00 | 4,272.00 | |
| Average inventory | 745.00 | 714.50 | |
| Liquidity: | |||
| Current ratio: | 1.764468371 | 1.879643388 | |
| Current assets | 2,622.00 | 2,530.00 | |
| Current liabilities | 1,486.00 | 1,346.00 | |
| Quick ratio: | 1.267160162 | 1.321693908 | |
| Current assets-inventory | 1,883.00 | 1,779.00 | |
| Current liabilities | 1,486.00 | 1,346.00 | |
| Financial leverage: | |||
| Debt equity ratio: | 4.793780687 | 6.983173077 | |
| Debt | 2,929.00 | 2,905.00 | |
| Equity | 611.00 | 416.00 | |
| Ratio of Current Liabilities to Proprietors’ Funds: | 2.43207856 | 3.235576923 | |
| Current liabilities | 1,486.00 | 1,346.00 | |
| Equity share capital | 611.00 | 416.00 | |
| Market performance: | |||
| Earnings per share (in cents) | 6.18 | 4.77 | |
| Price earnings ratio: | 257 | -18.9 | |
| Price per share | 10.28 | 11.34 | |
| Earnings per share | 0.04 | -0.6 | |
| Activity: | |||
| Operating cash flow ratio: | 0.05 | 0.07 | |
| Cash flows from operations | 68 | 90 | |
| Current liabilities | 1,486.00 | 1,346.00 | |
| Cash flow margin ratio: | 0.01 | 0.02 | |
| Cash flow from operating | 68 | 90 | |
| Net sales | 5,329.00 | 4,272.00 | |
(Annual report AMD, 2017)
(Annual report AMD, 2016)
(Yahoo finance AMD, 2018)
Actual financial statements:
| Fiscal year is January-December. All values USD millions. | 2016 | 2017 | 5-year trend |
| Sales/Revenue | 4.27B | 5.33B | |
| Sales Growth | 7.04% | 24.74% | |
| Cost of Goods Sold (COGS) incl. D&A | 3.27B | 3.51B | |
| COGS excluding D&A | 3.14B | 3.36B | |
| Depreciation & Amortization Expense | 133M | 144M | |
| Depreciation | 133M | 144M | |
| Amortization of Intangibles | – | – | |
| COGS Growth | 12.51% | 7.09% | |
| Gross Income | 998M | 1.82B | |
| Gross Income Growth | -7.68% | 82.67% | |
| Gross Profit Margin | – | 34.21% | NA |
| 2016 | 2017 | 5-year trend | |
| SG&A Expense | 1.47B | 1.68B | |
| Research & Development | 1.01B | 1.17B | |
| Other SG&A | 460M | 512M | |
| Other Operating Expense | – | – | |
| Unusual Expense | 55M | 15M | |
| EBIT after Unusual Expense | (524M) | 129M | |
| Non Operating Income/Expense | 230M | 60M | |
| Non-Operating Interest Income | 2M | 6M | |
| Equity in Affiliates (Pretax) | – | – | |
| Interest Expense | 156M | 126M | |
| Gross Interest Expense | 156M | 126M | |
| Interest Capitalized | – | – | |
| Pretax Income | (448M) | 69M | |
| Income Tax | 39M | 19M | |
| Income Tax – Current Domestic | (2M) | (3M) | |
| Income Tax – Current Foreign | 21M | 38M | |
| Income Tax – Deferred Domestic | (1M) | (15M) | |
| Income Tax – Deferred Foreign | 21M | (1M) | |
| Income Tax Credits | – | – | |
| Equity in Affiliates | (10M) | (7M) | |
| Other After Tax Income (Expense) | – | – | |
| Consolidated Net Income | (497M) | 43M | |
| Minority Interest Expense | – | – | |
| Net Income | (497M) | 43M | |
| Extraordinaries & Discontinued Operations | – | – | |
| Extra Items & Gain/Loss Sale Of Assets | – | – | |
| Cumulative Effect – Accounting Chg | – | – | |
| Discontinued Operations | – | – | |
| Net Income After Extraordinaries | (497M) | 43M | |
| Preferred Dividends | – | – | |
| Net Income Available to Common | (497M) | 43M | |
| EPS (Basic) | (0.60) | 0.05 | |
| Basic Shares Outstanding | 835M | 952M | |
| EPS (Diluted) | (0.60) | 0.04 | |
| Diluted Shares Outstanding | 835M | 1.04B | |
| EBITDA | (336M) | 288M |
Assets
| Fiscal year is January-December. All values USD millions. | 2016 | 2017 | 5-year trend |
| Cash & Short Term Investments | 1.27B | 1.19B | |
| Cash Only | 1.27B | 1.19B | |
| Short-Term Investments | – | – | |
| Total Accounts Receivable | 311M | 400M | |
| Accounts Receivables, Net | 311M | 400M | |
| Accounts Receivables, Gross | 311M | 400M | |
| Bad Debt/Doubtful Accounts | – | – | |
| Other Receivables | – | – | |
| Inventories | 751M | 739M | |
| Finished Goods | 176M | 237M | |
| Work in Progress | 564M | 468M | |
| Raw Materials | 11M | 34M | |
| Progress Payments & Other | – | – | |
| Other Current Assets | 202M | 296M | |
| Miscellaneous Current Assets | 139M | 219M | |
| Total Current Assets | 2.53B | 2.62B |
| 2016 | 2017 | 5-year trend | |
| Net Property, Plant & Equipment | 164M | 261M | |
| Property, Plant & Equipment – Gross | 881M | 1B | |
| Buildings | – | – | |
| Land & Improvements | – | – | |
| Computer Software and Equipment | – | – | |
| Other Property, Plant & Equipment | 148M | 187M | |
| Accumulated Depreciation | 717M | 740M | |
| Total Investments and Advances | 59M | 76M | |
| Other Long-Term Investments | – | 18M | |
| Long-Term Note Receivable | – | – | |
| Intangible Assets | 521M | 528M | |
| Net Goodwill | 289M | 289M | |
| Net Other Intangibles | 232M | 239M | |
| Other Assets | 36M | 42M | |
| Tangible Other Assets | 36M | 42M | |
| Total Assets | 3.32B | 3.54B |
Liabilities & Shareholders’ Equity
| 2016 | 2017 | 5-year trend | |
| ST Debt & Current Portion LT Debt | – | 70M | |
| Short Term Debt | – | – | |
| Current Portion of Long Term Debt | – | 70M | |
| Accounts Payable | 823M | 796M | |
| Income Tax Payable | – | – | |
| Other Current Liabilities | 523M | 620M | |
| Dividends Payable | – | – | |
| Accrued Payroll | 116M | 206M | |
| Miscellaneous Current Liabilities | 407M | 414M | |
| Total Current Liabilities | 1.35B | 1.49B | |
| Long-Term Debt | 1.44B | 1.33B | |
| Long-Term Debt excl. Capitalized Leases | 1.44B | 1.33B | |
| Non-Convertible Debt | 1.44B | 1.33B | |
| Convertible Debt | – | – | |
| Capitalized Lease Obligations | – | – | |
| Provision for Risks & Charges | 3M | – | |
| Deferred Taxes | 3M | – | |
| Deferred Taxes – Credit | 14M | 11M | |
| Deferred Taxes – Debit | 11M | 11M | |
| Other Liabilities | 107M | 107M | |
| Other Liabilities (excl. Deferred Income) | 107M | 107M | |
| Deferred Income | – | – | |
| Total Liabilities | 2.91B | 2.93B | |
| Non-Equity Reserves | – | – | |
| Preferred Stock (Carrying Value) | – | – | |
| Redeemable Preferred Stock | – | – | |
| Non-Redeemable Preferred Stock | – | – | |
| Common Equity (Total) | 416M | 611M | |
| Common Stock Par/Carry Value | 9M | 9M | |
| Retained Earnings | (7.8B) | (7.76B) | |
| ESOP Debt Guarantee | – | – | |
| Cumulative Translation Adjustment/Unrealized For. Exch. Gain | – | – | |
| Unrealized Gain/Loss Marketable Securities | (1M) | – | |
| Revaluation Reserves | – | – | |
| Treasury Stock | (119M) | (108M) | |
| Total Shareholders’ Equity | 416M | 611M | |
| Accumulated Minority Interest | – | – | |
| Total Equity | 416M | 611M | |
| Liabilities & Shareholders’ Equity | 3.32B | 3.54B |
Assets
| Fiscal year is January-December. All values USD millions. | 2016 | 2017 | 5-year trend |
| Cash & Short Term Investments | 1.27B | 1.19B | |
| Cash Only | 1.27B | 1.19B | |
| Short-Term Investments | – | – | |
| Total Accounts Receivable | 311M | 400M | |
| Accounts Receivables, Net | 311M | 400M | |
| Accounts Receivables, Gross | 311M | 400M | |
| Bad Debt/Doubtful Accounts | – | – | |
| Other Receivables | – | – | |
| Inventories | 751M | 739M | |
| Finished Goods | 176M | 237M | |
| Work in Progress | 564M | 468M | |
| Raw Materials | 11M | 34M | |
| Progress Payments & Other | – | – | |
| Other Current Assets | 202M | 296M | |
| Miscellaneous Current Assets | 139M | 219M | |
| Total Current Assets | 2.53B | 2.62B |
| 2016 | 2017 | 5-year trend | |
| Net Property, Plant & Equipment | 164M | 261M | |
| Property, Plant & Equipment – Gross | 881M | 1B | |
| Buildings | – | – | |
| Land & Improvements | – | – | |
| Computer Software and Equipment | – | – | |
| Other Property, Plant & Equipment | 148M | 187M | |
| Accumulated Depreciation | 717M | 740M | |
| Total Investments and Advances | 59M | 76M | |
| Other Long-Term Investments | – | 18M | |
| Long-Term Note Receivable | – | – | |
| Intangible Assets | 521M | 528M | |
| Net Goodwill | 289M | 289M | |
| Net Other Intangibles | 232M | 239M | |
| Other Assets | 36M | 42M | |
| Tangible Other Assets | 36M | 42M | |
| Total Assets | 3.32B | 3.54B |
Liabilities & Shareholders’ Equity
| 2016 | 2017 | 5-year trend | |
| ST Debt & Current Portion LT Debt | – | 70M | |
| Short Term Debt | – | – | |
| Current Portion of Long Term Debt | – | 70M | |
| Accounts Payable | 823M | 796M | |
| Income Tax Payable | – | – | |
| Other Current Liabilities | 523M | 620M | |
| Dividends Payable | – | – | |
| Accrued Payroll | 116M | 206M | |
| Miscellaneous Current Liabilities | 407M | 414M | |
| Total Current Liabilities | 1.35B | 1.49B | |
| Long-Term Debt | 1.44B | 1.33B | |
| Long-Term Debt excl. Capitalized Leases | 1.44B | 1.33B | |
| Non-Convertible Debt | 1.44B | 1.33B | |
| Convertible Debt | – | – | |
| Capitalized Lease Obligations | – | – | |
| Provision for Risks & Charges | 3M | – | |
| Deferred Taxes | 3M | – | |
| Deferred Taxes – Credit | 14M | 11M | |
| Deferred Taxes – Debit | 11M | 11M | |
| Other Liabilities | 107M | 107M | |
| Other Liabilities (excl. Deferred Income) | 107M | 107M | |
| Deferred Income | – | – | |
| Total Liabilities | 2.91B | 2.93B | |
| Non-Equity Reserves | – | – | |
| Preferred Stock (Carrying Value) | – | – | |
| Redeemable Preferred Stock | – | – | |
| Non-Redeemable Preferred Stock | – | – | |
| Common Equity (Total) | 416M | 611M | |
| Common Stock Par/Carry Value | 9M | 9M | |
| Retained Earnings | (7.8B) | (7.76B) | |
| ESOP Debt Guarantee | – | – | |
| Cumulative Translation Adjustment/Unrealized For. Exch. Gain | – | – | |
| Unrealized Gain/Loss Marketable Securities | (1M) | – | |
| Revaluation Reserves | – | – | |
| Treasury Stock | (119M) | (108M) | |
| Total Shareholders’ Equity | 416M | 611M | |
| Accumulated Minority Interest | – | – | |
| Total Equity | 416M | 611M | |
| Liabilities & Shareholders’ Equity | 3.32B | 3.54B |
Prof forma financial statements:
| 2018 | ||
| Net revenue | 5,861.90 | |
| Cost of sales | 3,856.60 | |
| Gross margin | 2,005.30 | |
| Research and development | -1,160.00 | |
| Marketing, general and administrative | -511.00 | |
| Amortization of acquired intangible assets | – | |
| Restructuring and other special charges, net | – | |
| Licensing gain . | 52.00 | |
| Operating income (loss) | 386.30 | |
| Interest expense | -126.00 | |
| Other income (expense), net | -9.00 | |
| Income (loss) before equity loss and income taxes . | 251.30 | |
| Provision for income taxes | -69.20 | |
| Equity loss in investee | -7.00 | |
| Net income (loss) . | 175.10 | |
| Assets | 2,018 | |
| Cash and cash equivalents | 1,185.00 | |
| Accounts receivable, net | 6,261.90 | |
| Inventories, net . | 739.00 | |
| Prepayment and other receivables—related parties | 33.00 | |
| Prepaid expenses | 77.00 | |
| Other current assets | 188.00 | |
| Total current assets | 8,483.90 | |
| Property, plant and equipment, net | 261.00 | |
| Goodwill | 289.00 | |
| Investment: equity method | 51.00 | |
| Other asset | 310.00 | |
| Total assets | 9,394.90 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||
| Short-term debt | 70.00 | |
| Accounts payable | 5,994.60 | |
| Payables to related parties | 412.00 | |
| Accrued liabilities | 541.00 | |
| Other current liabilities | 126.20 | |
| Deferred income on shipments to distributors | 22.00 | |
| Total current liabilities | 7,165.80 | |
| Long-term debt, net | 1,325.00 | |
| Other long-term liabilities | 118.00 | |
| Stockholders equity | 786.10 | |
| Total liabilities and stockholders’ equity | 9,394.90 |
References:
Asset Turnover Ratio | Analysis | Formula | Example. (2018). Retrieved from https://www.myaccountingcourse.com/financial-ratios/asset-turnover-ratio
Current Ratio | Formula | Example | Calculator | Analysis. (2018). Retrieved from https://www.myaccountingcourse.com/financial-ratios/current-ratio
Debt to Equity Ratio – How to Calculate Leverage, Formula, Examples. (2018). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/debt-to-equity-ratio-formula/
Gross profit (GP) ratio – explanation, formula, example and interpretation | Accounting for Management. (2018). Retrieved from https://www.accountingformanagement.org/gross-profit-ratio/
Inventory Turnover Ratio Formula | Example | Analysis. (2018). Retrieved from https://www.myaccountingcourse.com/financial-ratios/inventory-turnover-ratio
Net profit (NP) ratio – explanation, formula, example and interpretation | Accounting for Management. (2018). Retrieved from https://www.accountingformanagement.org/net-profit-ratio/
Quick Ratio | Acid Test | Formula | Example | Calculation. (2018). Retrieved from https://www.myaccountingcourse.com/financial-ratios/quick-ratio
Ratio Analysis. (2018). Retrieved from http://www.zenwealth.com/BusinessFinanceOnline/RA/RatioAnalysis.html
Definition of Earnings Per Share (eps) | What is Earnings Per Share (eps) ? Earnings Per Share (eps) Meaning – The Economic Times. (2018). Retrieved from https://economictimes.indiatimes.com/definition/earnings-per-share-eps
Price Earnings Ratio – Formula, Examples and Guide to P/E Ratio. (2018). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/valuation/price-earnings-ratio/
Proprietary Ratio – Definition, Explanation, Formula, Example – AccountingExplanation.com. (2018). Retrieved from http://www.accountingexplanation.com/proprietory_ratio.htm
Annual report 2016. (2018). Retrieved from http://ir.amd.com/static-files/b3724c50-8010-4ed9-b3cb-b34eadc83969
Annual report 2017. (2018). Retrieved from http://ir.amd.com/static-files/8bb65d11-8cd8-4402-8951-fa16383bcf5e
Welcome to AMD | Processors | Graphics and Technology | AMD. (2018). Retrieved from https://www.amd.com/en
