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ACCT/FIN 2220 ~ Financial Statement Analysis

Understanding Financial Statements 11th edition


Chapter 2 ~ Analyzing the Balance Sheet
Case 2.1 ~ Intel
Step-by-Step Guide & Explanations! 6% of your overall grade!

Part (a):
You must prepare both a common-size (vertical) analysis and a growth (horizontal) analysis
balance sheet! These should be prepared in Excel in order to produce a professional document;
however, the Excel spreadsheet will have to be copied into your Word document.
(Refer to my videos on Excel Basics found on the Ch. 1 Page in Canvas.)

Part (b):
In order to determine which assets are the most significant, you must put together the results
from both your horizontal and vertical analysis reports prepared in part (a). For example if you
were initially concerned that a particular asset account had a 34% decrease (horizontal analysis
result), but that asset is only 1.8% of the total assets (vertical analysis result), then do you still
have a concern?

Cash and Cash Equivalents and All Investment Accounts: will be analyzed in detail in Ch. 4
with the Statement of Cash Flows! (Cash and Cash Equivalents, Short-term Investments, Trading
Assets, Marketable Equity Securities, Other Long-term Investments, and Other Long-term
Assets)
Accounts Receivable ~ must be analyzed using the instructions in the Ch. 2 homework problem
related to Accounts Receivable and must include an analysis of the Valuation and Qualifying
Accounts schedule found on page 115 of the 10-K report!
 The Valuation and Qualifying Accounts schedule details the estimates for uncollectible
accounts and the actual write-offs of accounts.
o Does the current year estimate seem reasonable based on the amount of write-
offs, the balance in the allowance account, and the balance in the accounts
receivable account?
 Was there anything in the notes to the financial statements that would impact your
analysis?
 Was there anything in the MD&A and 10-K that would impact your analysis (yes because
Intel has three significant customers)?

UFS ~ Ch. 2 Intel Case Page 1


Inventories ~ refer to the Ch. 2 homework problem!
 What inventory valuation method used?
o What accounts are affected by the inventory valuation method chosen?
o What was the effect on those accounts based on the company’s choice?
o Was there anything in the notes to the financial statements that would impact your
analysis?
o Was there anything in the MD&A and/or 10-K that would impact your analysis?
Deferred Tax Asset/Liability ~ refer to the Ch. 2 homework problem!
 Has there been a significant change in this account (using both horizontal and vertical
analysis)? (See also part (f) below).
Property, Plant, and Equipment, net ~ refer to the textbook for analysis tools as we didn’t
have specific homework problem on PP&E, if you have changes that you need to analyze!
 What was the chosen method of depreciation?
 Has there been a significant change in this account (using both horizontal and vertical
analysis)?
 The balance sheet only shows two comparative years; however, Item 6 of the 10-K shows
five comparative years. Calculate the percentage change in PP&E from 2009 to 2013;
then compare that change to the percentage change in Total Assets from 2009 to 2013?
 Was there anything in the notes to the financial statements that would impact your
analysis?
 Was there anything in the MD&A and/or 10-K that would impact your analysis? Yes, one
of the required MD&A items is “Commitments for capital expenditures (capital assets),
the purpose of such commitments, and expected sources of funding.” From your Ch. 1
Case results, what did management say regarding this item?

Have there been significant changes to the asset structure from 2012 to 2013? Yes, the asset
structure is the relationship between current and long-term assets (i.e. current assets as a
percentage of total assets on your vertical analysis).

Part (c):
You should have already completed this requirement with part (b).

Part (d):
Current Liabilities ~ any concerns based on your horizontal and vertical analysis results?
Long-term Debt
 Using both your horizontal and vertical analysis, any concerns?
 The balance sheet only shows two comparative years; however, Item 6 of the 10-K shows
five comparative years. Calculate the percentage change in Long-term Debt from 2009 to
2013; does this result raise any concerns?

UFS ~ Ch. 2 Intel Case Page 2


 Was there anything in the notes to the financial statement that would impact your
analysis?
 Was there anything in the MD&A and/or 10-K that would impact your analysis?
Other Long-term Liabilities ~ any concerns based on your horizontal and vertical analysis?

Have there been significant changes to the liability and equity structure from 2012 to 2013?
 Current v. long-term liabilities?
 Total liabilities v. total equity?
o Should be referring to your vertical analysis report.

Part (e):
Describe the commitments and contingencies of Intel. (Required note disclosure!)

Part (f):
Under which classification(s) are deferred taxes listed (current asset, long-term asset, current
liability, or long-term liability)? What item is the most significant component of deferred taxes
(see the note regarding deferred taxes)?

Part (g):
What equity accounts are included on the balance sheet?

UFS ~ Ch. 2 Intel Case Page 3