Where to Start When Learning to Invest!
The SEC has penalties such as monetary fines and prison sentences in-place as incentives for companies to submit honest reports, so trust issues previously identified shouldn’t be of personal concern. Much more information is contained within 10-K Forms that are beyond the intended scope of this research. Advanced Micro Devices, (MAD), a computer chip manufacturer whose stock is biblically traded and their 2010 II;K Form, (MAD, 201 1), will be examined to answer three key questions. “What does Mad’s presentation of their uncial information say about how they use financial information to inform investors?
And, what does Mad’s presentation of their financial information tell about how they use financial information for making decisions internally? What are some facts that support the actions presented? Different elements need to be established to answer these questions. First, historical and current fiscal data points will be analyzed. At various points additional information will be presented to provide different perspectives for comparison of what is being presented to the investor and what it means to hem. Finally actions taken by management will be reviewed to gain knowledge of what their intentions were.
All of these factors will demonstrate the value of starting with a company’s ID-K submission! Historical and Current Fiscal Data Points To gain insight about Mad’s financial status required a close look at its- K, part II, Item 6. Between 2006 and 2009 revenues remained virtually flat and in 201 0 increased 20 percent. During this five year time period, continuing operations and net income attributable to MAD common stockholders recognized a loss of 1 1. 42 billion dollars. Further losses of $1 . Bib from discontinued operations, net of tax. Long-term debt between 2006 and 2009 averaged 4. Billion per year and 2010 saw a significant reduction to 52. Bib. In short, this snapshot view reflects heavy losses with some glimmer of hope starting some time in 2009 which carried overt 2010. Incommodiousness. Net demonstrates various financial ratios and discusses how to employ them to answer many questions about a company, (2012). Determining liquidity could be used to determine if a company has the ability to pay its bills. Applying the Current Ratio” formula of, ‘total current assets divided by total current liabilities”, to Mad’s situation equates to ratio of 2. 18.
This does meet Incommodiousness. Ones general rule of thumb requirement, (greater than 2 to 1), but when compared to the 2006 ratio of 3. 13, it becomes quite obvious that Mad’s capacity to take of the bills has decline. Comparison was made to Intel Corporation, (a direct competitor and within the same time reporting period), managed a “Current Ratio” of 3. 39, (2010 data extracted from Intel 201 1 10-K), (Intel, 2012). Applying the basic fundamentals of”Current Ratio” ND simple trend analysis Of what’s clearly a downward trend for MAD should make novice investors steer clear.
Mad’s 1 0-K fiscal data provides more than just profits and loss information to investors. Analysis of “Long-term debt, capital lease obligations and other, less current portion and other long term liabilities”, between 2006 and 2009 averaged 4. 9 billion dollars per year and showed a significant reduction occurred in 2010 to $2. Bib. “Discontinued operations, net of tax” provides a way for the business to communicate that, “this income or loss wont be incurred in the future”, (Kenton, n. . ).
This information ties to another notable data point, “Total assets”, which were reduced by $8. 18 billion thru the sale of, (certain assets of it’s Digital Television business to Victim”, and sale other a few other company assets, (MAD, 2011). Internal Management Decisions Mad’s CEO submitted a significant amount of detailed fiscal data regarding Mad’s finances in Part II, Item 7 of the 10-K report. As reflected by the immediate reduction of debt of 2010, shows proactive steps being taken by the company and given the Current Ratio calculated previously it needed to be done time now!
Sale of company assets that were underperforming was also identifiable by review of the Discontinued Operations shows good commitment towards fixing the fiscal problems that existed. Decisions to buyback company stock can be a bad internal events if the motives are wrong, (Janssen, 2012), but MAD incurred substantial losses to dividend payouts and compound by poor sales revenue, so it was mostly like the correct decision. Further digging into the stock buyback shows that the company did have some gains from making that move. With the details provided it appears that Mad’s management is executing some good sections.
