Company History: Advanced Micro Devices (AMD)
Advanced Micro Devices (AMD) is an American firm that operates in the semiconductors industry. The company deals with the development of computer processors and other forms of technologies required in the running of personal computers. The establishment of AMD dates back to May 1, 1969, when Jerry Sanders, an electrical engineer, incorporated the firm under the registration name of AMD. AMD Inc. has its headquarters in Santa Clara, California (Quindara). The main products manufactured at AMD includes embedded processors, motherboard chipsets, microprocessors, graphics processors and personal computers among others.
AMD is listed in the Nasdaq Stock Market and its shares are traded with the identity of NASDAQ: AMD under the S & P 500 Component. Lisa Su is the current president and Chief Executive Officer (CEO) at AMD. James Edward Caldwell is the current Chairman of the board. During the financial year that ended in 2017, AMD reported revenues amounting to US$5.33 billion and operating income of US$204 million. The gains translated to a net income of US$ 43 million showing that the firm is among the most profitable entities in the semiconductors industry. AMD also boasts a large asset base of US$3.54 billion and total equity amounting to US$611 million (Quindara). Additionally, AMD has a total of 8,901 employees who aid in meeting the company’s objectives in producing high-quality products. The company’s website is www.amd.com.
Liquidity ratio Advanced Micro Devices (AMD)
Liquidity ratio examines the ability of a firm to meet its obligations towards external parties with the use of current assets. The ratio shows the ability of a firm to generate cash from short-term assets held at its disposal. Current ratios under consideration include current ratio, quick ratio and cash ratio.
Current ratio (CR) Advanced Micro Devices (AMD)
The current ratio measures the ability of the firm to meet its short term and long-term debt obligations to creditors.
| 2015 | 2016 | 2017 | |
| Current Assets (millions) | 2,320 | 2,530 | 2,662 |
| Current Liabilities (millions) | 1,403 | 1,346 | 1,486 |
| Current Ratio (CR) | 1.65 | 1.88 | 1.79 |
Quick ratio Advanced Micro Devices (AMD)
Quick ratio examines the rate at which a company can meet its short-term debts with ease.
| 2015 | 2016 | 2017 | |
| Current Assets (millions) | 2,320 | 2,530 | 2,662 |
| Inventory (millions) | 678 | 751 | 739 |
| Current Liabilities (millions) | 1,403 | 1,346 | 1,486 |
| Quick Ratio (QR) | 1.17 | 1.32 | 1.29 |
Cash ratio Advanced Micro Devices (AMD)
Cash ratio measures the value of liquid assets held by a firm in relation to the current liabilities. It measures the ease of a firm using its cash to settle short-term debts.
| 2015 | 2016 | 2017 | |
| Cash and cash Equivalent (millions) | $ 785 | $ 1,264 | $ 1,185 |
| Current Liabilities (millions) | $ 1,403 | $ 1,346 | $ 1,486 |
| Cash ratio | 0.56 | 0.94 | 0.80 |
A summary of AMD’s liquidity ratios follows below.
| Liquidity Ratios | |||
| 2015 | 2016 | 2017 | |
| CR | 1.65 | 1.88 | 1.79 |
| QR | 1.17 | 1.32 | 1.29 |
| Cash Ratio | 0.56 | 0.94 | 0.8 |
The trends in the liquidity ratio show that AMD reported an increase in liquidity from 2015 to 2016 as its ability to meet debt obligations increased by a huge extent. The trend further declined slightly from 2016 to 2017 due to the reduction in the amount of funds required to pay debts to creditors (Altman, p.540).
Efficiency ratios Advanced Micro Devices (AMD)
Efficiency ratios measure the ability of a firm to utilize its assets and liabilities in an effective manner during the operations of the firm. The ratios include inventory turnover, asset turnover, and fixed assets turnover.
Inventory turnover ratio Advanced Micro Devices (AMD)
The ratio shows the number of times a firm has sold inventories and replaced it with new stock within a financial period.
| 2015 | 2016 | 2017 | |
| Cost of goods sold (Million) | 2911 | 3274 | 3506 |
| average inventory (Million) | 678 | 751 | 739 |
| Inventory turnover ratio | 4.29 | 4.36 | 4.74 |
Asset turnover ratio Advanced Micro Devices (AMD)
The ratio measures the efficiency of a firm in utilizing assets to gain earnings.
| 2015 | 2016 | 2017 | |
| net sales (millions) | 3991 | 4272 | 5329 |
| average total assets (millions) | 3084 | 3321 | 3540 |
| Asset turnover ratio | 1.29 | 1.29 | 1.51 |
Fixed assets turnover Advanced Micro Devices (AMD)
The ratio examines the efficiency of a firm to utilize its machinery, equipment and other fixed assets in generating earnings during its operations.
| 2015 | 2016 | 2017 | |
| net sales (millions) | 3991 | 4272 | 5329 |
| fixed assets (millions) | 984 | 881 | 1001 |
| accumulated depreciation (millions) | 796 | 717 | 740 |
| Fixed assets turnover | 21.2 | 26.0 | 20.4 |
The results for efficiency ratios realized by AMD can be summarized below.
| Efficiency ratio | |||
| 2015 | 2016 | 2017 | |
| Inventory turnover ratio | 4.29 | 4.36 | 4.74 |
| Asset turnover ratio | 1.29 | 1.29 | 1.51 |
| Fixed Assets Turnover | 21.2 | 26.0 | 20.40 |
The summary shows that AMD reported an increasing trend in the efficiency ratio from 2015 to 2017. The increase resulted from the mobilization of the use of resources at the firm which in turn increased earnings gained from the various property owned by the firm.
Profitability ratio Advanced Micro Devices (AMD)
The ratio measures the ability of a company to generate earnings with respect to the expenses incurred. The ratios include gross profit margin, operating profit margin, net profit margin, return on assets and return on equity.
Gross profit margin (GPM) Advanced Micro Devices (AMD)
The ratio examines the financial health of a company by examining the proportion of gain that a firm realizes after accounting for costs obtained to acquire the sales.
| 2015 | 2016 | 2017 | |
| Revenues | $ 3,991 | $ 4,272 | $ 5,329 |
| Cost of goods sold | $ 2,911 | $ 3,274 | $ 3,506 |
| GPM | 27% | 23% | 34% |
Operating profit margin (OPM) Advanced Micro Devices (AMD)
The ratio points out the amount of revenues that a firm realizes from its operations after the subtraction of cost of goods and operating expenses incurred during the daily operations.
| 2015 | 2016 | 2017 | |
| Revenues | $ 3,991 | $ 4,272 | $ 5,329 |
| Operating Income | $ 481 | $ 372 | $ 204 |
| OPM | 12% | 9% | 4% |
Net profit margin (NPM) Advanced Micro Devices (AMD)
The ratio examines the percentage of the net gains that a firm realizes from its operations after subtracting all expenses incurred on an annual basis.
| 2015 | 2016 | 2017 | |
| Revenues | $ 3,991 | $ 4,272 | $ 5,329 |
| Net Profit | $ 660 | $ 497 | $ 43 |
| NPM | 17% | 12% | 1% |
The graphical and tabular representation of AMD’s ratios follow below.
| Profitability Ratio | |||
| 2015 | 2016 | 2017 | |
| GPM | 27% | 23% | 34% |
| OPM | 12% | 9% | 4% |
| NPM | 17% | 12% | 1% |
The summary of profitability shows that AMD has reported a decline in profitability levels during the three years under evaluation. The reduction in AMD’s profitability has resulted from the increased costs and expenses incurred to run the firm’s operations, which in turn decreases the gains over the years.
Solvency ratios Advanced Micro Devices (AMD)
Solvency ratios measure the ability of a firm to meet its short term and long-term debts with the use of the existing resources. The ratio measures the probability of a firm repaying debts without the strain of seeking outside financing to settle the obligations (Uotila, Maula and Keil, p.229). Solvency ratios include total debts to total assets ratio, debt to equity ratio, and total interest earned ratio.
Total debts to total assets ratio Advanced Micro Devices (AMD)
The ratio measures the financial leverage of a company by showing the proportion of assets in a firm that has been financed through debts.
| 2015 | 2016 | 2017 | |
| Total Liabilities (million) | $ 3,496 | $ 2,905 | $ 2,929 |
| Total Assets (million) | $ 3,084 | $ 3,321 | $ 3,540 |
| TD/TA | 1.13 | 0.87 | 0.83 |
Debt Equity ratio Advanced Micro Devices (AMD)
The ratio examines the proportion of debts used to finance a firm’s operations relative to the shareholder’s equity.
| 2015 | 2016 | 2017 | |
| Total Liabilities (million) | $ 3,496 | $ 2,905 | $ 2,929 |
| Shareholder’s Equity | -412 | 416 | 611 |
| D/E | -8.49 | 6.98 | 4.79 |
Time Interest Earned (TIE) Advanced Micro Devices (AMD)
TIE measures the ability of a firm to meet its interest amounts from its debts with the use of income at its disposal.
| 2015 | 2016 | 2017 | |
| EBIT | $ 486 | $ 292 | $ 195 |
| Interest Expense | $ (160) | $ (156) | $ 126 |
| TIE | -3.04 | -1.87 | 1.55 |
A summary of AMD’s solvency ratios follows below.
| Solvency ratio | |||
| 2015 | 2016 | 2017 | |
| TL/TA | 1.13 | 0.87 | 0.83 |
| D/E | -8.48 | 6.98 | 4.79 |
| TIE | -3.04 | -1.87 | 1.55 |
The summary shows that AMD has reported an increased solvency ratio from 2015 to 2017. The increase shows that the firm has achieved stronger financial health which has created a positive image in the sight of creditors. The analysis is also an indication that AMD can easily secure external funding due to the high probability of repayment within the required time.
DuPont Analysis Advanced Micro Devices (AMD)
DuPont analysis is a technique that is applied to measure the ability of a firm to increase its return on equity. The analysis aims at increasing earnings realized from the finances contributed by shareholders to spur a firm’s operations. The DuPont analysis conducted in the study is for the 2017 financial year.
| DuPont Analysis
|
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| 2015 | 2016 | 2017 | |
| Profit Margin | 0.17 | 0.12 | 0.01 |
| Total Asset Turnover | 1.16 | 1.33 | 1.55 |
| Financial Leverage | -8.48 | 6.98 | 4.79 |
| ROE | -167% | 111% | 7% |
AMD’s DuPont analysis shows that the firm experienced an increasing trend in ROE from 2015 to 2016 and a decreasing one from 2016 to 2017. However, AMD registered a high asset turnover over the periods which show that it has enjoyed a high rate of sales over the evaluated period. The decline in ROE from 2016 to 2017 resulted from the increase in operating costs which decreased the profit margin to a huge extent.
Conclusion
The analysis has shown that AMD Inc. has registered positive trends in its performance while it has incurred reduced returns in some instances. The declining trend in liquidity ratio is an indication that the firm has reduced allocations to debt settlement account. The trend indicates that the firm may experience difficulties in securing short-term debts due to its low capacity to repay on time. A possible solution to the problem is that AMD should allocate more funds towards settling short-term debts to improve its liquidity levels. The increasing trend of efficiency levels shows that AMD has successfully employed strategies that have resulted in high earnings (Brammer and Millington, p.1332). The firm should continue mobilizing its various resources to increase future efficiency and as a result, achieve high levels of earnings. AMD has experienced a declining trend in the level of profitability. The decline results from the rising expenses to run the firm’s operations. A possible solution is that the management should set targets for declining operating costs to enhance the achievement of high profit levels. The increasing solvency ratio is an indication that AMD is financially healthy due to the ability to meet external obligations with ease. The firm should maintain its position, in the long run, to enhance a strong market venture without fear of insolvency at any moment.
References
Altman, I Edward. “Financial ratios, discriminant analysis and the prediction of corporate bankruptcy.” The journal of finance (2012): 589-609.
Brammer, Stephen and Andrew Millington. “Does it pay to be different? An analysis of the relationship between corporate social and financial performance.” Strategic Management Journal (2008): 1325-1343.
Nasdaq. AMD Company Financials. 2018. https://www.nasdaq.com/symbol/amd/financials?query=balance-sheet. 23 July 2018.
Quindara, Hanan. History of AMD — Advanced Micro Devices, Inc. 4 December 2017. <https://medium.com/dotmachines/history-of-amd-advanced-micro-devices-inc-c4e6bfa35a24>.
Uotila, J, et al. “Exploration, exploitation, and financial performance: analysis of S&P 500 corporations.” Strategic Management Journal (2009): 221-231.
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