The downloaded four years' balance sheets and income statements are to be used to calculate the financial ratios

not reported in the DJI. For example, four leverage ratios (Debt/Equity, LT Debt/ Cap, LT Debt/Tot Debt, and LT Debt/Tot Assets) are reported, but the interest coverage ratio (= earnings available for interest/interest expenses) is missing in the DJI. Students are required to obtain the earnings and interest expenses information from the income statements and calculate this ratio to measure the company's ability to service the debt. In the area of liquidity, current ratio (= current assets/current liabilities) and quick ratio (= quick assets/ current liabilities) are reported, but the interval measure (= quick assets/daily operating expenditures) is not. Students are required to obtain quick assets (= cash & equivalent + receivables) from the balance sheets and operating expenditures from the income statements, and calculate this ratio to measure how long the company can keep up with its bills using only existing quick assets. As the financial ratios in each of the five performance areas are compiled, they are analyzed across time. A sample trend analysis for Intel is presented (below) in Table 1. Table 1. Intel Trend Analysis

Performance Area Leverage: Debt % Tot Assets Interest Coverage Liquidity: Current Ratio Quick Ratio Interval Measure (days) Profitability: Profit Margin (%)

1998

1997

1996

1995

Trend

25.7 269.7

33.2 395.8

28.9 318.4

30.6 195.4

Drop in leverage during 1998 Lower coverage during 1998

2.3 1.0 63.8

2.6 1.3 90.8

2.8 1.6 115.3

2.2 1.3 86.4

Lower liquidity since 1996 Lower liquidity since 1996 Lower liquidity since 1996

23.1

27.7

24.7

22.0

Lower profitability during 1998 Lower ROA

Return on Assets (%)

19.3

24.0

21.7

20.4

during 1998 Return on Equity (%) Efficiency: Asset Turnover Receivables Turnover .835 7.5 .868 7.0 .878 6.1 .926 6.4 Lower efficiency since 1995 Increased efficiency since 1996 Increased efficiency since 1995 26.0 36.0 30.6 29.4 Lower ROE during 1998

Inventory Turnover

5.7

5.2

4.4

4.1

Market Value: Price/Book Value 8.41 5.92 6.37 3.83 Good market perceptions

ROA = (Net Income/Revenue) * (Revenue/Assets) = Profit Margin * Asset Turnover And the company's return on equity, ROE (=net income/equity), can be expressed as ROE = (Net Income/Revenue) * (Revenue/Assets) * (Assets/Equity) = ROA * Equity Multiplier Both the company's profitability (as measured in terms of profit margin) and efficiency (as measured in terms of asset turnover) determine its ROA. This ROA, along with the company's financial leverage (as measured in terms of its equity multiplier), contributes to its ROE. As the company's use of leverage magnifies its ROE, students are required to examine ROE carefully. The changes in the company's ROE are to be noted and explained through its profit margin, asset turnover, and equity multiplier over time. The objective is to identify the company's strong area that can be capitalized upon and/or its weak area that must be improved upon. See Table 2 (below) for a sample Du Pont analysis for Intel.

Table 2. Intel Du Pont Analysis

Item / Ratio Net Income, $million (from Income statements) Revenue, $million (from Income statements) Assets, $million (from balance sheets) Equity, $million (from balance sheets) Profit Margin % (Net Income/Revenue) Asset Turnover (Revenue/Assets) Return on Assets % (Profit Margin* Asset Turnover) Equity Multiplier (Assets/Equity) Return on Equity % (ROA* Equity Multiplier)

1998 6068

1997 6945

1996 5157

1995 3566

Evaluation

26273

25070

20847

16202

31471

28880

23735

17504

23377

19295

16872

12140

23.1

27.7

24.70

22.0

Drop in profitability during 1998 Lower efficiency since 1995 Drop in ROA during 1998 Decrease in leverage during 1998 Sharp decline in ROE during 1998

.835

.868

.878

.926

19.3

24

21.7

20.4

1.35

1.50

1.41

1.44

26.0

36.0

30.6

29.4

INDUSTRY COMPARATIVE ANALYSIS

To explain the variation in the company's financial ratios over time, the industry comparative analysis must be performed along with the trend analysis. To evaluate

the company's financial performance against its key competitors, the company-tocompany comparison report is retrieved from the following path.
y y y y y y y

On DJI page, click on Company/Industry Comparison Reports Select Report: Company to Company Comparison Enter First Company's Symbol: _____________ Enter Second Company's Symbol: _____________ Select Display as: Formatted report Click on Get Report Download the report (see APPENDIX 2 for a Company to Company Comparison Report for Intel)

The financial ratios in each of the performance areas are then analyzed across companies in the industry/group. Students compare their company's financial ratios with those of its key competitors and determine whether managerial or environmental factors cause the trend of the company's financial performance. To further assess the company's financial standing in its primary industry, the company to industry comparison report is retrieved. (See below.)
y y y y y y y

Back to DJI page, click on Company/Industry Comparison Reports Select Report: Company to Industry Comparison Enter Company Symbol: _____________ Select Compare to: this Company's Primary Industry (as identified by DJI) Select Display as: Formatted report Click on Get Report Download the report (see APPENDIX 3 for a Company to Primary Industry Comparison Report for Intel)

The following specific industry norms are available in DJI and used as benchmarks in this analysis:
y y y y y

Liquidity: Current Ratio; Leverage: Debt/Equity, Interest Coverage; Profitability: Profit Margin, Return on Equity, Return on Assets; Efficiency: Revenue/Assets; Market Value: Price/Book Value, Price/Earnings, Dividend Yield.

Students will report on how the company performs as compared to the industry norms and where the company stands relative to its competitors in the industry. The company's weak and/or strong areas of performance must be identified and recommendations for improvement presented. See Table 3 (below) for a sample industry comparative analysis for Intel.

Table 3. Intel Industry Comparative Analysis

Performance Area Leverage: Debt/Equity (%) Interest Coverage Liquidity: Current Ratio Profitability: Profit Margin (%) Return on Assets (%) Return on Equity (%) Efficiency: Revenue/Assets Market Value: Price/Book Value Price/Earnings Dividend Yield (%)

Intel

AMD*

Semiconductors

Evaluation Excellent

3 269.7

73 -

19 20.8

Low leverage High coverage Good

3.2

1.7

2.8

Above average liquidity Excellent

26.1 19.3 28.9

-0.9 -2.4 -

11.1 7.2 14.1

High profitability High ROA High ROE Good

.86

.64

.82

Above average Good

8.41 36.3 0.2

2.10 0.0

6.04 67.3 0.1

High price to book Below average PE Average

* AMD, Advanced Micro Devices, is one of Intel's key competitors in semiconductors industry. Go to additional Intel data.

CASE BRIEF AND PRESENTATION

To reinforce the teamwork effort, each group must submit a written report summarizing the ratio analyses of the companies in their industry. Students will work together and produce a group report that is concise and similar in style to an executive summary with no more than four typed pages plus exhibits. Each group

will also give an oral presentation to brief the class on their analyses, their recommendations, and the limitations of their analyses. Charts and tables are required in the Power Point presentation.

SUMMARY
The incorporation of computer technology in finance classes has become more popular than ever in this information technology rich environment. Mediated classrooms have grown rapidly in numbers throughout universities worldwide. This teaching note demonstrates how finance professors, business students, and investment club members can take advantage of the changing environment to enhance learning. Students can easily retrieve a company's real time financial data via the Internet and analyze its financial performance over time. The assignment presented herein is designed to help students/investors learn how to assess the company's overall operations and its current financial standing in the industry through teamwork and state of the art computer technology. It can be used in any corporate finance classes and/or investment clubs.

REFERENCES
Bodie, Z. and R.C. Merton. Finance (2000), Prentice-Hall, Inc. Brealey, R.A. and S.C. Myers. Principles of Corporate Finance (2000), 6th Edition, The McGraw-Hill Companies, Inc. Brealey, R.A., S.C. Myers and A.J. Marcus. Fundamentals of Corporate Finance (1999), 2nd Edition, The McGraw-Hill Companies, Inc. Brigham, E.F. and J.F. Houston. Fundamentals of Financial Management (1999), Concise 2nd Edition, The Dryden Press. Brigham, E.F., L.C. Gapenski and M.C. Ehrhardt. Financial Management: Theory and Practice (1999), 9th Edition, The Dryden Press. Gitman, L.J. Principles of Managerial Finance (2000), 9th Edition, Addison Wesley Longman, Inc. Keown, A., J.W. Petty, D.F. Scott and J.D. Martin. Foundations of Finance (1998), 2nd Edition, Prentice-Hall, Inc. Ross, S.A., R.W. Westerfield and B.D. Jordan. Essentials of Corporate Finance (1999), 2nd Edition, Irwin/McGraw-Hill.

Ross, S.A., R.W. Westerfield and J. Jaffe. Corporate Finance (1999), 5th Edition, Irwin/McGraw-Hill. Scott, D.F., J.D. Martin, J.W. Petty and A. Keown. Basic Financial Management (1999), 8th Edition, Prentice-Hall, Inc.

APPENDIX 1. FINANCIAL PROFILE Data current through 10/06/1999 INTEL CORP 2200 Mission College Blvd. Santa Clara, California 95052-8119 Telephone: (408) 765-8080 Fax: (408) 765-1596 Dow Jones Industry Group: Semiconductors Business Description: Designs, develops, manufactures and markets microcomputer components and related products at various levels of integration. Its principal components consist of silicon based semiconductors etched with complex patterns of transistors. Primary SIC: 3674 Stock Symbol: INTC Exchange: NASDAQ CEO: Craig R. Barrett Employees: 64,500 Auditors: Ernst & Young LLP Latest Report: Unqualified Balance Sheet Statement ($ Mil)

Fiscal Year End Assets Cash & Equivalent Receivables Inventories

12/1998

12/1997

12/1996

12/1995

2,038.0 3,527.0 1,582.0

4,102.0 3,438.0 1,697.0

4,165.0 3,723.0 1,293.0

1,463.0 3,116.0 2,004.0

Other Cur Assets Total Cur Assets Gr Fixed Assets Accum Depr Net Fixed Assets Oth Non-Cur Asset Tot Non-Cur Asset Total Assets Liabilities Accounts Payable Short-Term Debt Other Cur Liab Total Cur Liab Long-Term Debt Defer Inc Taxes Oth Non-Cur Liab Tot Non-Cur Liab Total Liabilities Preferred Equity Common Equity Retained Earnings Total Equity Tot Liab & Stk Eq

6,328.0 13,475.0 21,068.0 9,459.0 11,609.0 6,387.0 17,996.0 31,471.0

6,630.0 15,867.0 18,127.0 7,461.0 10,666.0 2,347.0 13,013.0 28,880.0

4,503.0 13,684.0 14,262.0 5,775.0 8,487.0 1,564.0 10,051.0 23,735.0

1,514.0 8,097.0 11,792.0 4,321.0 7,471.0 1,936.0 9,407.0 17,504.0

1,244.0 159.0 4,401.0 5,804.0 702.0 1,387.0 201.0 2,290.0 8,094.0 0.0 23,377.0 17,952.0 23,377.0 31,471.0

1,407.0 322.0 4,291.0 6,020.0 448.0 1,076.0 2,041.0 3,565.0 9,585.0 0.0 19,295.0 15,984.0 19,295.0 28,880.0

969.0 389.0 3,505.0 4,863.0 728.0 997.0 275.0 2,000.0 6,863.0 0.0 16,872.0 13,975.0 16,872.0 23,735.0

864.0 346.0 2,409.0 3,619.0 400.0 620.0 725.0 1,745.0 5,364.0 0.0 12,140.0 9,557.0 12,140.0 17,504.0

Income Statement ($ Mil)

Fiscal Year End Revenues/Sales Cost of Sales

12/1998 26,273.0 9,337.0

12/1997 25,070.0 7,753.0

12/1996 20,847.0 7,276.0

12/1995 16,202.0 6,432.0

Gr Oper Profit S, G & A Expenses Op Prof bef Depr Deprec & Amort Oper Inc aft Depr Other Income, Net Inc Avail for Int Interest Expense Pretax Income Income Taxes Net Inc Tot Ops Special Inc/Chrg Normalized Income Total Net Income Preferred Div Net Inc Avail Com

16,936.0 5,585.0 11,351.0 2,807.0 8,544.0 792.0 9,171.0 34.0 9,137.0 3,069.0 6,068.0 -165.0 6,233.0 6,068.0 0.0 6,068.0

17,317.0 5,238.0 12,079.0 2,192.0 9,887.0 799.0 10,686.0 27.0 10,659.0 3,714.0 6,945.0 0.0 6,945.0 6,945.0 0.0 6,945.0

13,571.0 4,130.0 9,441.0 1,888.0 7,553.0 406.0 7,959.0 25.0 7,934.0 2,777.0 5,157.0 0.0 5,157.0 5,157.0 0.0 5,157.0

9,770.0 3,139.0 6,631.0 1,379.0 5,252.0 415.0 5,667.0 29.0 5,638.0 2,072.0 3,566.0 0.0 3,566.0 3,566.0 0.0 3,566.0

Key Financial Ratios

Fiscal Year End Book Value P/S Price/Book Val (%) Debt/Equity (%) LT Debt % Inv Cap LT Debt % Tot Dbt Debt % Tot Assets Quick Ratio Current Ratio Revenue/Assets (%)

12/1998 7.05 841 3 2.9 8.7 25.7 1.0 2.3 80.0

12/1997 5.93 592 2 2.3 4.7 33.2 1.3 2.6 90.0

12/1996 5.14 637 4 4.1 10.6 28.9 1.6 2.8 90.0

12/1995 3.70 383 3 3.2 7.5 30.6 1.3 2.2 90.0

Price/Revenue (%) Cash % Revenue Pre-Tax Mgn (%) Post-Tax Mgn (%) Eff Tax Rate (%) Receivable Turn Inventory Turn Ret on Equity (%) Ret Invest Cap (%) Ret on Assets (%)

748 7.8 34.8 23.1 33.6 7.5 5.7 26.0 25.2 19.3

456 16.4 42.5 27.7 34.8 7.0 5.2 36.0 35.2 24.0

516 20.0 38.1 24.7 35.0 6.1 4.4 30.6 29.3 21.7

288 9.0 34.8 22.0 36.8 6.4 4.1 29.4 28.4 20.4

Key Competitors: 3Com Acer AMD Atmel Cisco Systems EDS Fujitsu Harris Corporation Hitachi IBM Integrated Device Technology Lucent Macronix International Mitsubishi Electric Motorola National Semiconductor NEC Nortel Networks Philips Electronics Samsung Electronics STMicroelectronics Sun Microsystems Texas Instruments Toshiba Data Source: Media General Financial Services Used with permission from Dow Jones Interactive

APPENDIX 2. COMPANY TO COMPANY COMPARISON REPORT Data current through 10/06/1999

INTEL CORP Price Change Latest Week Last 4 Weeks Last 13 Weeks Last 52 Weeks YTD Change vs S&P 500 Latest Week

ADVANCED MICRO DEVICES

2.7 % -11.9 % 16.1 % 83.6 % 29.8 %

12.7 % -10.4 % 14.4 % 28.0 % -33.0 %

99 %

109 %

Last 4 Weeks Last 13 Weeks Last 52 Weeks YTD Price Range ($) Latest Close 52-Week High 52-Week Low 5-Year High 5-Year Low Relative Price P/E Ratio P/E, 5-Yr Avg High P/E, 5-Yr Avg Low Price/Book Value Price/Revenue Price Action Beta Volume Shares Latest Week $ Latest Week % of Shares Out Liquidity Ratio On-Balance Index Revenue 12 Months ($Mil) Fiscal Year ($Mil) Change Last Qtr Change YTD Earnings 12 Months ($Mil) EPS 12 Months($) EPS Fiscal Year($) Change EPS Qtr Change EPS YTD Change EPS 12 Mos 5-Yr Ann EPS Growth Dividends Indicated Rate($)

90 % 123 % 136 % 120 %

91 % 121 % 95 % 62 %

76.94 89.50 40.75 89.50 6.34

19.44 33.00 14.56 48.50 10.25

36.3 24.1 12.2 841 % 903 %

NE NC NC 210 % 106 %

1.25

1.64

58,668,800 4,500,263,000 1.77 % 906,964,100 50 %

8,122,000 152,453,000 5.52 % 14,871,200 95 %

28,194.0 26,273.0 13.8 % 16.1 %

2,701.4 2,542.1 13.0 % 14.9 %

7,371.0 2.12 1.73 54.5 % 56.5 % 30.9 % 24.9 %

-25.2 -0.18 -0.72 NE NE NE NC

0.12

0.00

Dividend Yield 5-Yr Annual Growth Payout Ratio Payout Last 5 Years Last Ex-Dividend Ratios Profit Margin Return on Equity Return on Assets Revenue/Assets Debt/Equity Interest Coverage Current Ratio Shareholdings Market Value ($Mil) Latest Shares Out Insider Net Trading Short Int Ratio Fiscal Year Ends

0.2 % 19.06 % 4% 4% 11/03/1999

0.0 % NC NC NC 04/27/1995

26.1 % 28.9 % 19.3 % 86 % 3% 269.7 3.2

-0.9 % NE -2.4 % 64 % 73 % NC 1.7

254,509 3,308,000,000 -60,000 1.8 Days 12/1998

2,861 147,211,000 -18,667 5.5 Days 12/1998

Data Source: Media General Financial Services Used with permission from Dow Jones Interactive

APPENDIX 3. COMPANY TO PRIMARY INDUSTRY COMPARISON REPORT Data current through 10/06/1999

INTEL CORP Price Change Latest Week Last 4 Weeks Last 13 Weeks Last 52 Weeks YTD Change vs S&P 500 Latest Week Last 4 Weeks 2.7 % -11.9 % 16.1 % 83.6 % 29.8 %

SEMICONDUCTORS 6.0 % -9.5 % 4.9 % 106.4 % 29.2 %

99 % 90 %

103 % 92 %

Last 13 Weeks Last 52 Weeks YTD Price Range ($) Latest Close 52-Week High 52-Week Low 5-Year High 5-Year Low Relative Price P/E Ratio P/E, 5-Yr Avg High P/E, 5-Yr Avg Low Price/Book Value Price/Revenue Price Action Beta Volume Shares Latest Week $ Latest Week % of Shares Out Liquidity Ratio On-Balance Index Revenue 12 Months ($Mil) Fiscal Year ($Mil) Change Last Qtr Change YTD Earnings 12 Months ($Mil) EPS 12 Months($) EPS Fiscal Year($) Change EPS Qtr Change EPS YTD Change EPS 12 Mos 5-Yr Ann EPS Growth Dividends Indicated Rate($) Dividend Yield

123 % 136 % 120 %

111 % 153 % 120 %

76.94 89.50 40.75 89.50 6.34

58.58 65.91 28.29 65.91 10.38

36.3 24.1 12.2 841 % 903 %

67.3 32.4 17.3 673 % 687 %

1.25

1.53

58,668,800 4,500,263,000 1.77 % 906,964,100 50 %

323,557,900 18,770,692,000 2.80 % 3,175,400,000 61 %

28,194.0 26,273.0 13.8 % 16.1 %

97,374.4 90,467.4 22.9 % 17.5 %

7,371.0 2.12 1.73 54.5 % 56.5 % 30.9 % 24.9 %

10,808.0 0.87 0.71 150.0 % 59.3 % 22.5 % -9.8 %

0.12 0.2 %

0.06 0.1 %

5-Yr Annual Growth Payout Ratio Payout Last 5 Years Last Ex-Dividend Ratios Profit Margin Return on Equity Return on Assets Revenue/Assets Debt/Equity Interest Coverage Current Ratio Shareholdings Market Value ($Mil) Latest Shares Out Insider Net Trading Short Int Ratio Fiscal Year Ends

19.06 % 4% 4% 11/03/1999

0.92 % 6% 3%

26.1 % 28.9 % 19.3 % 86 % 3% 269.7 3.2

11.1 % 14.1 % 7.2 % 82 % 19 % 20.8 2.8

254,509 3,308,000,000 -60,000 1.8 Days 12/1998

677 11,557,097,000 -2,525,608 2.0 Days 12/1998

Data Source: Media General Financial Services Used with permission from Dow Jones Interactive