working capital management final
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INTEL : MANAGING WORKING CAPITAL
INTRODUCTION
• Intel was the leader in the microprocessor industry in early 2004.
• Launched over 450 products & services.• Intel’s success attributed to technology,
management & its unbroken leadership chain.
• Realized the increasing importance of WORKING CAPITAL MANAGEMENT.
HISTORY
• 1968 – Bob Noyce and Gordon Moore found Intel• 1971 – A new era in integrated Electronics• 1974 – The Intel 8080 microprocessor • 1981 – Intel wins the IBM PV Account• 1989 – Advancing Human Welfare• 1991 – Intel is a household name• 2000 – Pentium 4• 2003 – Introducing Intel Centrino mobile technology
PRODUCTS
• About 450 different productsProcessorsChipsetsMemory chipsBoards and platformsOptical devicesSoftware
NET REVENUE
ADVANCED MICRO DEVICES(AMD)
• AMD was founded in 1969, headquartered at Sunnyvale, CA.
• AMD is a customer-centric innovation company, a processing solutions powerhouse.
• AMD works with computing, wireless, and consumer electronics companies to create smarter choices for customers—from individual consumers to the largest commercial enterprises.
Cont…
• Combined revenue by segment• FY2007 $6,013mn
Computation Products 68.1%Graphics and Chipsets 22.6%Consumer Electronics 7.3%Embedded Products 2.0%
CONFLICT BETWEEN INTEL & AMD
• Intel licensed technology to AMD to make their own version of the 80286 chip.
• Intel made attempts to protect technology of its highly successfully 386 & 486 chips when AMD captured 52% of that market.
• AMD sued Intel for breach of contract.
• They later settled several court cases.
• AMD got the micro code license & Intel was awarded US$ 58 mn in damages.
And the battle continues…
WORKING CAPITAL MANAGEMENT
DEFINITION
• It is the difference between current assets and current liabilities.
• The portion of current assets financed with long term funds.
• Measure of liquidity.
OBJECTIVE
• To manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained.
OPERATING CYCLE
Phase 3
CASH
RECEIVABLES
INVENTORYPhase 1
Phase 2
DETERMINATION OF OPERATING CYCLE(INTEL)
Raw material holding period = 360*Stock of raw material cost of raw material consumedWIP holding period = 360*stock of WIP Cost of goods manufacturedFinished goods holding period = 360*stock of finished goods cost of goods soldDebtors collection period = 360*debtors credit sales(-)Creditors payment period = 360*creditors purchases
2002
5.97
36.55
18.42
34.08
(41.31)
53.71
2001
6.32
35.13
18.68
35.36
(47.22)
48.27
2007
9.90
28.52
27.41
6.17
(46.17)
25.83
DETERMINATION OF OPERATING CYCLE(AMD)
Raw material holding period = 360*Stock of raw material cost of raw material consumedWIP holding period = 360*stock of WIP Cost of goods manufacturedFinished goods holding period = 360*stock of finished goods cost of goods soldDebtors collection period = 360*debtors credit sales(-)Creditors payment period = 360*creditors purchases
2002
3.89
43.59
26.48
67.67
(60.26)
81.37
2007
4.61
42.30
28.89
61.43
(96.84)
40.39
2001
3.68
32.90
16.31
91.72
(42.40)
102.21
WORKING CAPITAL RATIOS
CURRENT RATIO
2001 2002 20070
0.5
1
1.5
2
2.5
3 2.682.86
2.13
1.711.47
1.93
IntelAMD
QUICK RATIO
2001 2002 20070
0.5
1
1.5
2
2.5
32.34
2.52
1.791.5
1.16
1.62IntelAMD
INVENTORY TURNOVER RATIO
2001 2002 20070
1
2
3
4
5
6
75.98 5.9
5.01
6.8
4.86
3.25 IntelAMD
SUGGESTIONS
• The recent financial crisis has led to :Tightening in credit markets Low level of liquidity in financial markets
This could result in insolvency of key suppliers leading to product delays. Hence Intel should maintain higher inventory levels to avoid stock outs.
• Proper risk management policy.
Cont...
• Improvement in creditors payment period.
• Proper planning of production schedule.
• Maintenance of debtors credit policy.• Constant innovations.
THANK YOU
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