Objectives and Game Plan

• Become familiar with Intel’s financial statements and

better understand information on the Balance Sheet
• Ratio Analysis

15.515 Fall 2003 2

Session 3
 Walking Through Intel’s Annual Report

• CEO’s Letter
• Financial Statements
– Income Statement
– Balance Sheet
– SCF
– SE
– Notes
• Auditor’s report
• MD&A

15.515 Fall 2003 3

Session 3
 ROE (Dupont) Analysis

NI = NI + (int. exp.) X NI X Assets

SE Assets
 
 

NI + (int. exp.) SE

Operating Capital
Performance Structure
“return on assets”

“return on “asset
sales” turnover”
NI + (int. exp.) Sales
Sales X Assets

15.515 Fall 2003 4

Session 3
 ROE (Dupont) Analysis – Intel 2002

NI 3,117 + 84 3,117 (44,224 + 44,395)/2

SE (44,224 + 44,395)/2 3,117 + 84 (35,468 + 35,830)/2

0.087 = 0.072 X 0.974 X 1.243

ROE ROA pre-interest Common Capital

Equity Structure
Leverage Leverage

3,117 + 84 26,764
26,764 (44,224+44,395)/2
0.120 X 0.604

ROS pre-interest Asset

Turnover 15.515 Fall 2003 5
Session 3
 Return on Sales vs. Asset Turnover

4
Sales
Assets
3.5
Each point represents an
industry 3

2.5

2
Semiconductors
1.5

NI + (int. exp.) 0.5

Sales 0
-3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5

15.515 Fall 2003 6

Session 3
 Return on Sales vs. Asset Turnover

4
Excluding negative ROAs and Financal Institutions
Sales
3.5 Each point represents an
Assets industry
3
2.5
2
1.5
1 NI + (int. exp.)
Sales
0.5
0
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

15.515 Fall 2003 7

Session 3
 Curves Showing Equal Return on Assets

4 Sales
Assets
3.5
Return on Assets
3 14%
2.5 8%
2
2%
1.5
NI + (int. exp.)
1
Sales
0.5
0
0.03

0.06

0.09

0.12

0.15

0.18

0.21

0.24

0.27

0.30

0.33

0.36

0.39
15.515 Fall 2003 8
Session 3
 Intel 1998 - 2002

Common Capital Sales

Equity Structure over
ROE ROA Leverage Leverage ROS Assets

1998 0.270 0.202 0.993 1.344 0.232 0.871

1999 0.260 0.195 0.994 1.339 0.250 0.780
2000 0.301 0.230 0.996 1.312 0.314 0.735
2001 0.035 0.029 0.955 1.262 0.051 0.575
2002 0.087 0.072 0.974 1.243 0.120 0.604

Data Source: Intel Corporation

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Session 3
 Comparative ROEs

Common Capital
Equity Structure Sales over
CONAME ROE ROA Leverage Leverage ROS Assets
2001 MICROSOFT 0.166 0.132 1.000 1.257 0.290 0.454

2001 STARBUCKS CORP 0.144 0.108 1.000 1.325 0.068 1.584

2001 IHOP CORP 0.141 0.102 0.656 2.103 0.189 0.539

2001 LILLY (ELI) & CO 0.423 0.192 0.929 2.367 0.259 0.742
2001 MERCK & CO 0.472 0.185 0.940 2.717 0.162 1.137
2001 PFIZER INC 0.453 0.223 0.960 2.114 0.253 0.883

2001 TIFFANY & CO 0.177 0.121 0.897 1.630 0.120 1.005

2001 LIMITED BRANDS 0.205 0.126 0.939 1.740 0.059 2.126
2001 TJX COMPANIES 0.391 0.166 0.925 2.551 0.051 3.281
2001 99 CENTS ONLY 0.169 0.154 0.998 1.098 0.084 1.837

15.515 Fall 2003 10

Session 3
 -30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
I 89
IV 89
III 90
II 92

Dell
III 91
II 92
I 93
Compaq

IV 93
III 94
II 95
I 96
IV 96
III 97
Gross Profit Percentage

II 98
I 99
IV 99
III 00
Session 3
15.515 Fall 2003

II 01
I 02
11
 Gross Profit Percentage

60% Apple
50%
Compaq
40%

30%
Dell
20%

10%

0%
III 90

III 91

III 94

III 97

III 00
II 92

II 92

II 95

II 98

II 01
I 89

I 93

I 96

I 99

I 02
IV 89

IV 93

IV 96

IV 99
-10%

-20%

-30%

15.515 Fall 2003 12

Session 3