Total Assets Essay Example
2 Part financial reporting problem
Intel Corporation Financial Statements
The most recent financial reporting period for Intel Corporation is the period ended 31st December, 2013. As at 31st December, 2013, Intel Corporation’s total assets amounted to $92,358 Million (Intc.com, 2015). The information on total assets is important since it indicates the value of all things owned by the company as well as those due to the firm. It further shows the uses of funds advanced to the corporation by the creditors, financiers, and shareholders. The company uses the money from the above sources and uses it to purchase non-current assets as well to provide working capital for daily operations. Furthermore, the value of a firm’s total assets indicates the size of the firm. A firm with a large value of total assets is considered a large company.
In the previous accounting period (as at 31st December, 2012), Intel Corporation’s total assets were $84,351 million (Intc.com, 2015). This indicates that the company’s total assets increased in the year ended December 2013. The increase in total assets may also show an increase in the size of the corporation.
Cash and cash equivalents
The balance of Intel’s cash and cash equivalents account was $5,674 million as at December 31, 2013, a reduction from the $8,478 million as at the same date the previous accounting period.
Accounts payable balance was $2,969 million on 31st December, 2013 and $3,023 million on the same date the previous year.
During the most recent financial year (2013), Intel made a total of $52,708 million in net revenue(Intc.com, 2015). In the year ended December 31, 2012, the corporation’s total net revenue was $53,341 million while, in the period ended December 2012, net revenue was $53,999 million. The above figures show that net revenues declined both in 2012 and 2013. The decrease in net revenues may suggest that there was a drop in Intel’s efficiency of utilizing its resources to generate revenues. Since net revenues are directly related to net income, the reduction may also imply a decrease in the profitability of the corporation.
In the year ended December 2013, Intel Corporation made a net profit of $9,620 million. In the previous year, net income was $11,005 million (Intc.com, 2015). This shows that net income declined in 2013 thus implying a fall in the profitability of the company.
Total current assets
Total current assets as at 31st December, 2013 were $32,084 million. In the reporting date for the previous period (December 2012), total current assets were $31,358. The values indicate that there was an increase in the value of total current assets of Intel in the year 2013.
Importance of the above information to different users
The aim of potential investors is to identify a company or an investment that minimizes the risk and maximizes their returns. They are, therefore, more interested in the profitability and financial strength of Intel Corporation. They will be interested in total assets, net revenues and net income of the company. The amount of total assets is important to investors as it helps in determining the size of the company as well as the amount of the potential claim after meeting the claims due to creditors. The increase in total assets is also relevant information to potential investors since it indicates that the company is growing. They will also be interested in the net revenues and net income to assess the profitability of Intel. Every investor wants to invest in profitable companies in order to guarantee a return on their investment. From the given figures, Intel’s net profit margin was 18.25% in the year 2013 implying that it made a net income of $0.1825 from every dollar of net revenue. In the previous year, the net profit margin was 20.63%. The reduction in profitability of Intel Corporation will be a concern for the potential investors.
Employees are also an important group of stakeholders in the company. They offer their efforts towards the goals of the company and expect compensation in return for their efforts. Employees will be interested in the amount of Intel’s cash and cash equivalents in order to determine whether Intel can pay them their salaries and wages in a timely manner. A company facing cash flow challenges may not be able to pay its employees their dues.
Creditors will be interested in the liquidity of Intel Corporation since it will determine whether the company can meet its obligations. The information creditors will be concerned with include the total current assets, cash and cash equivalents as well as accounts payable. The creditors will compare the current assets with current liabilities in order to assess the liquidity of Intel. A large balance of cash and cash equivalents would indicate that Intel has liquid assets to pay its short-term debts. In this case, the amount of cash and cash equivalents is more than that of accounts payable hence creditors would be confident of Intel’s ability to pay their dues.
Intel Corporation has an obligation to pay corporation tax to the government. Therefore, the information on net revenues and net incomes will be of interest to the government. This information enables the government to determine the amount of tax payable by the firm. Information on changes in total assets such as disposals and acquisitions is also important in tax computation as it enables the government to determine the amount of capital allowances accruing to the company.
Customers are concerned about the company’s ability to guarantee a continuous supply of high-quality products. Information on total assets will be critical to the customers as it may suggest the ability of Intel top continue being in business. Furthermore, an increase in total assets indicates Intel’s growth thus assuring customers of its capability of maintaining productivity and guaranteeing supply of products both in current and future periods.
The interest of shareholders of Intel is to maximize their wealth through improved profitability. The information on net revenues and net incomes will be valuable to the shareholders as it will enable them to assess the profitability of the firm. The changes in net income and revenue are also important as shareholders can use the trend to predict profitability in future periods and make a decision on whether to hold or sell Intel’s stock. In addition, change in total assets is crucial to shareholders as it shows whether the company is growing or not.
The assets listed under Intel’s current assets in the balance sheet are cash and cash equivalents, trading assets, short-term investments, inventories, accounts receivable, deferred tax assets and other current assets. These assets differ in terms of their liquidity and permanency. Liquidity is the ease of converting an item into cash (Weil, Schipper & Francis, 2014). Liquidity is important since current obligations are usually paid in cash (Weil, Schipper & Francis, 2014). In the balance, current assets should be listed in the order of liquidity from the most to the lease liquid. An examination of the current assets section of Intel’s balance sheet shows that the company arranged its current assets in the proper order. The first item in the category is cash and cash equivalents which are the most liquid current assets. IT is followed by short-term investments and trading assets in that order. Accounts receivables follow trading assets, and this is correct since trading assets are more liquid than accounts receivables. The next is inventories, followed by deferred tax assets and other current assets in that order. This indicates that Intel listed its current assets in the order of liquidity from the most liquid to the least liquid current asset.
Classification of Intel’s assets
Intel Corporation classified its assets into current and non-current assets. Its current assets include cash and cash equivalents, trading assets, short-term investments, inventories, accounts receivable, deferred tax assets and other current assets. The non-current assets include property, plant and equipment, marketable equity securities, long-term investments. Also included are intangible assets such as goodwill and identifiable intangible assets.
Cash equivalents are highly liquid short-term investments that have a maturity period of three or less months (Weil, Schipper & Francis, 2014). They are more readily convertible into cash than accounts receivables and inventories. They include Treasury bills, marketable securities, commercial papers, short-term government bonds, among other securities.
Total current liabilities
The amount of total current liabilities of Intel Corporation as at 31st December, 2013 was $13,568 while the amount on the same date the previous year was $12,898 million (Intc.com, 2015). This indicates the amount of current liabilities increased in 2013.
Importance of the information above to different users
Potential creditors will use the information above to determine the ability of Intel Corporation to repay its short-term obligations. They will be interested in total current assets, cash, and cash equivalents, accounts payable and total current liabilities. A potential creditor will determine the current ratio using the current assets and current liabilities. In this case, Intel Corporation’s current ratio was 2.365 and 2.4312 in 2013 and 2012 respectively. This indicates that the amount of current assets was more than that of current liabilities hence Intel was able to meet its short-term obligations. In addition, a potential creditor would determine Intel’s cash ratio using the amount of cash and cash equivalents and total current liabilities (Weil, Schipper & Francis, 2014). Intel Corporation had a cash ratio of 0.418 indicating that its balance of cash and cash equivalents could pay about 41% of its total current liabilities.
A potential creditor would also be interested in the amount of accounts payable. A large balance of accounts payable may suggest that the company is not prompt in paying its creditors. The potential creditor would be willing to sell to Intel on credit since the company has a high liquidity as shown by the above figures.
Information on profitability of Intel such as revenues and net incomes will be more valuable to potential and current investors. They will calculate the company’s net profit margin and return on assets to assess its profitability. The figures above indicate that Intel’s net profit margin was 18.25% and 20.63% in the years 2013 and 2012 respectively. The return on total assets was 10.42% in 2013 and 13.05% in 2012. An area of concern to the investors would be the decline in both net profit margin and return on total assets.
Information on total current assets, cash and cash equivalents and total current liabilities will be valuable to employees. An employee will determine Intel’s working capital in order to assess whether it faces working capital challenges. In addition, employees will look at the balance of cash and cash equivalents to evaluate the ability Intel Corporation to pay their salaries in due course. A company with working capital and cash flow challenges cannot pay employees their salaries in a timely manner. Intel has a positive working capital, and it does not have any cash flow challenges hence it can pay employees their salaries when they become due. Net revenues and net income will also be of value to employees. They will use the information to assess the profitability of Intel. A profitable Intel will offer some sense of job security since a loss-making firm is likely to lay off its employees if the trend of losses continues.
Changes in total assets would be significant to clients as they may suggest growth in the company hence an improvement in the ability of Intel to continue in business. They will also assess the current assets and current liabilities to determine if there are any working capital challenges. This is because a capital facing working capital challenges cannot guarantee a continuous supply of products. In addition, they will be interested in the profitability of Intel as the company may cease operations if it is making losses thereby customers will lose their source of products.
v) Management of Intel Corporation
The information on net revenues and net incomes will enable to assess the profitability of the company and develop measures to improve profitability. Current assets and current liabilities will allow the management to determine the efficiency of working capital management strategies. In addition, the balance of cash and cash equivalents will be used by the management to assess if the company has cash flow challenges and establish measures to improve cash availability.
Intc.com,. (2015). Intel Corporation - Annual Reports, 10-Ks, and Proxy Statements. Retrieved 24 March 2015, from http://www.intc.com/annuals.cfm
Weil, R., Schipper, K., & Francis, J. (2014). Financial accounting. Mason, OH: South-Western, Cengage Learning.
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