Income Statements » What Do I See? » Exercises
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E X E R C I S E S
is.wis.is.040 Applying hierarchical approach to analyzing income
These questions pertain to Intel’s statements and a related footnote disclosure at the end
of this exercise. Check your answers in the provided solution.
Here you will search for data to compute ratios that progressively drill deeper into Intel’s
financial performance. In the “How Do I Use the Numbers?” section, we will expand on
the interpretation of the ratios you compute in this exercise.
Part I: Comprehensive income – ROE-CI
Comprehensive income is the broadest performance measure reported by for-profit companies. The Return-on-Equity—Comprehensive Income (ROE-CI) ratio can help you
assess companies’ performance at this broad level.
ROE-CI = comprehensive income / average owners’ equity
(a) Calculate Intel’s ROE-CI for their most recent year.
Level 1: Comprehensive Income
Intel
2010
ROE-CI
2009
12.69%
2008
11.21%
Part II: Major categories – ROE and ROE-OCI
Level 2 analysis entails examining two major categories of comprehensive income: Net
income and other comprehensive income (OCI). Here are the related ratios:
ROE = net income / average owners’ equity
ROE-OCI = other comprehensive income / average owners’ equity
(b) Calculate Intel’s ROE and ROE-OCI for their most recent year. Carry forward your
calculation of ROE-CI from above to complete this table.
Level 2: Major Categories
Intel
2010
ROE
ROE-OCI
ROE-CI
2009
2008
10.75%
12.79%
1.93%
-1.58%
12.69%
11.21%
(c) Compare and contrast the trends in each of the three ratios in (b) above. What is the
relationship among the ratios in this table?
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2
NAVIGATING ACCOUNTING®
Part III: Significant subcategories – Margins and DuPont Model
Companies typically combine income-statement line items into subcategories and provide
subtotals for each. Here, the focus will be on the significant subcategories of net profit
(loss) and the related margin ratios:
Operating margin = operating profit / revenue
Non-operating profit margin = non-operating income(loss) / revenue
Profit margin = profit before taxes / revenue
(d) Calculate Intel’s margins for their most recent year.
Level 3: Significant Subcategories: Margins
Intel
2010
2009
2008
Operating margin
16.26%
23.82%
Non-operating margin
-0.02%
-3.37%
Profit margin
16.24%
20.45%
Level 3 analysis can be expanded using the DuPont Model. Here are the related ratios:
Profit margin = profit before taxes / revenue
Asset turnover = revenue / average total assets
Financial leverage = average total assets / average owners’ equity
Tax factor = 1- (tax expense / pretax income)
ROE = net income / average owners’ equity
(e) Calculate Intel’s DuPont Model ratios for their most recent year. Carry forward your
calculations of ROE and profit margin from (b) and (d) to complete this table.
Level 3: Dupont Model
Intel
2010
Profit margin
2009
16.24%
2008
20.45%
Asset turnover
0.68
0.71
Financial leverage
1.27
1.28
Tax factor
76.60%
68.85%
ROE
10.75%
12.79%
(f) Compare and contrast the trends in ratios you computed in (e). What is the relationship among the ratios in this table?
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3
EXERCISES
Figure 1 Intel’s Balance Sheet
This figure is an excerpt from Intel’s 2010 annual Form10-K report.
INTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 25, 2010 and December 26, 2009
2010
(In Millions--Except Par Value)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trading assets
Accounts receivable, net of allowance for doubtful accounts of $28 ($19 in 2009)
Inventories
Deferred tax assets
Other current assets
Total current assets
Property, plant and equipment, net
Marketable equity securities
Other long-term investments
Goodwill
Other long-term assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Short-term debt
Accounts payable
Accrued compensation and benefits
Accrued advertising
Deferred income on shipments to distributors
Other accrued liabilities
Total current liabilities
Long-term income taxes payable
Long-term debt
Long-term deferred tax liabilities
Other long-term liabilities
Commitments and contingencies (Notes 23 and 29)
Stockholders' equity:
Preferred stock, $0.001 par value, 50 shares authorized; none issued
Common stock, $0.001 par value, 10,000 shares authorized; 5,581 issued and 5,511
$
$
$
outstanding (5,523 issued and outstanding in 2009) and capital in excess of par value
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
$
5,498
11,294
5,093
2,867
3,757
1,488
1,614
31,611
17,899
1,008
3,026
4,531
5,111
63,186
38
2,290
2,888
1,007
622
2,482
9,327
190
2,077
926
1,236
2009
$
$
$
3,987
5,285
4,648
2,273
2,935
1,216
813
21,157
17,225
773
4,179
4,421
5,340
53,095
172
1,883
2,448
773
593
1,722
7,591
193
2,049
555
1,003
-
-
16,178
333
32,919
49,430
63,186
14,993
393
26,318
41,704
53,095
$
Intel's 2010 Form 10-K, page 49. www.sec.gov
See accompanying notes in the 10-K.
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NAVIGATING ACCOUNTING®
Figure 2 Intel’s Income Statement
This figure is an excerpt from Intel’s 2010 annual Form10-K report.
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 25, 2010
(In Millions--Except Per Share Amounts)
Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general and administrative
Restructuring and asset impairment charges
Amortization of acquisition-related intangibles
Operating expenses
Operating income
Gains (losses) on equity method investments, net
Gains (losses) on other equity investments, net
Interest and other, net
Income before taxes
Provision for taxes
Net income
Basic earnings per common share
Diluted earnings per common share
Weighted average shares outstanding
Basic
Diluted
2010
43,623
15,132
28,491
6,576
6,309
0
18
12,903
15,588
117
231
109
16,045
4,581
$ 11,464
$
2009
35,127
15,566
19,561
5,653
7,931
231
35
13,850
5,711
(147)
(23)
163
5,704
1,335
$
4,369
$
2008
37,586
16,742
20,844
5,722
5,452
710
6
11,890
8,954
(1,380)
(376)
488
7,686
2,394
$
5,292
$
$2.06
$2.01
$0.79
$0.77
$0.93
$0.92
5,555
5,696
5,557
5,645
5,663
5,748
Intel's 2010 Form 10-K, page 48. www.sec.gov
See accompanying notes in the 10-K.
5
EXERCISES
Figure 3 Intel’s Comprehensive Income Footnote
This figure is an excerpt from Intel’s 2010 annual Form10-K report, Note 27.
Intel's Comprehensive Income Footnote
The components of total comprehenisve income were as follows:
(in millions)
Net Income
Other comprehensive income (loss)
Total comprehensive income
2010
11,464
$
(60)
$ 11,404
2009
4,369
$
786
$
5,155
2008
5,292
$ (654)
$ 4,638
Intel's 2010 Form 10-K, page 94. www.sec.gov
See accompanying notes in the 10-K.