Research Project Part 2: Bond and Stock Performance Analysis
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Research Project Part 2: Bond and Stock Performance Analysis
Introduction
The paper is set to discuss the position of Advanced Micro Devices (AMD) In terms of its Bond performance compared to its shares. To further gain an understanding of the financial status of the company. In determining the company’s financial health, the paper discusses the various ratios that are critical in the determination of the company’s financial health. The report has undertaken to compare the company’s ratios with those of its closest competitor, Intel. The paper ends with a reflection or observation of the company’s performance and financial health in the industry.
The financial leverage ratios
| RATIO | 2020 | 2019 | 2018 |
| Debt-to-assets ratio (Debt ratio) | 0.06 | 0.11 | 0.25 |
| Debt-to Equity ratio | 0.54 | 1.13 | 2.60 |
| Interest Coverage ratio | 29.1x | 6.7x | 3.7x |
The company has recorded a reduction in its Debt-to-Equity Ratio for the period under review (2018-2020). For the three years under review, the company recorded a cumulative decrease of 1. 42% in its Debt-to-Equity ratio. The fall in the company’s Debt-to-Equity indicates that the company has consistently reduced reliance on debts to finance its assets and business operations. A lower D/E ratio is an indication that the company is efficiently spending the shareholders’ equity in the management and acquisition of its essential assets (Akhmetshin et al., 2017).
The debt-to-assets ratio measures the proportion of a company’s assets owned by the creditors, people, or institutions from which the company has borrowed finances to fund its operations or assets. A lower debt-to-asset ratio is an indication that the company is less indebted, especially on the acquisition of its assets. The company’s Debt-to- Asset ratio has been improving over the period under review (Osadchy et al., 2018).
Based on the analysis and interpretation of the leverage ratios, the company is exposed to less risk since its ratios measure the risks. Over the three years, the company has consistently maintained the acquisition of its assets not through debts but through making good use of its shareholder’s equity instead of relying on debt sources. The company’s interest coverage ratio has improved and can cover its interest obligations with its operating incomes. The risk in the business can be measured or determined through applying measurement tools such as; earnings at risk, value at risk, and value at equity. Each of the tools measures the level to which the business’s operations are exposed to risks that would lower the company’s financial health or ability (Osadchy et al., 2018).
Bond performance of AMD Company.
| Symbol | Sub-product Type | Coupon | Maturity | Price |
| AMD3886398 | Corporate Bond | 7.500 | 08/15/2022 | 111.375 |
| AMD4013916 | Corporate Bond | 7.500 | 08/15/2022 | 108.170 |
Price of the bond × the Par
111.375 1000
$111,375
7.5/100×1000
$75
=
=7.5%
AMD3886398:1.890
AMD4013916:1.001
The company’s corporate bonds have different yields. In investing in the company’s bonds, I would opt to invest in the first bond (AMD3886398) because it has a higher yield rate than the second one. Investing in the bond will yield a high income with a difference of 0.889. Investing in the first bond will be more profitable than investing in the second bond, which has a lower Yield in the long run(Mactrotrends, 2020).
Both bonds are callable. Based on the fact that the bonds are callable, I would prefer to retain the bonds in the long run as an investor. The primary decision the retaining these bonds is that there will be compensated with a more attractive interest rate by the issuer (AMD) if the company pays off its debt early (Mactrotrends, 2020).
Investing in the company will be highly encouraged, the company is financially healthy, and The Company’s net income has been steadily increasing in the recent past. Over the recent past, the company’s net profit has been steadily rising from 2018 through to 2020. The Balance is more stable, as depicted by increasing amounts of the assets while the liabilities have been steadily reducing within the period under review (2018-2020). The company has a solid financial background backed by its leverage ratios, demonstrating that the company is financing its operations through its shareholders’ equity and not through debts. Therefore, the company is more stable financially and does not stand the risk of collapsing or closing down the shop. Therefore, the company’s financial health is a motivation to invest in its bonds (Mactrotrends, 2020).
To an investor, this is a highly recommended company to invest in its bonds. The company has a higher financial stability rating depending on its financial standings and performance, especially within the three years under review in which the compared has comparatively indicated many improvements in its assets, net income while at the same time has had tremendously recorded gains in its liabilities which have considerably reduced over the three years under review.
The stock performance of AMD Company for the last one year.
(i) Market Ratios Analysis
| RATIO | 2020 | 2019 | 2018 | |||
| AMD | Intel | AMD | Intel | AMD | Intel | |
| Price/Earnings ratio | 44.96 | 10.03 | 152.87 | 12.30 | 57.69 | 9.92 |
| Price/Book ratio | 19.03 | 2.48 | 18.98 | 3.21 | 14.65 | 2.69 |
| Earnings per share | $1.47 | $1.42 | $0.15 | $1.57 | $0.04 | $1.12 |
| Dividends per share | 0.00 | 1.32 | 0.00 | 1.26 | 0.00 | 1.20 |
| EV/EBITDA ratio | 76.2 | 5.8 | 93.6 | 8.4 | 31.9 | 6.9 |
AMD’s main competitor is Intel. Over the three years under review, the company has performed better based on its various market ratios. While AMD has consistently recorded a high value on its Price Earnings Ratio P/E over the three years under review, Intel has significantly trailed the company in the P/E ratio. With a higher P/E percentage, there are indications that the stocks of AMD have been overvalued in comparison to those of Intel (Osadchy et al., 2018).
For the three years under review, Intel consistently recorded a low P/B ratio. Compared to its main competitor, AMD, the company has therefore performed poorly with a record three consecutive lows comparative to the AMD. The company had both low book value and market. Ostensibly the company performed poorly against its competitor. (Mactrotrends, 2020).
The common stockholders of AMD have consistently been receiving adequate returns on their investments. The Earnings Per Share (EPS) for AMD to its stockholders have continuously been increasing, from a low of $0.04 in 2018 to a high of $1.47 (Mactrotrends, 2020).
The P/E ratio for the semiconductors industry is 30.20, while that of AMD is 44.96. It is apparent, therefore, that AMD’s P/E is overvalued. The AMD is overvalued because investors are more attracted to the company and are willing to invest (Mactrotrends, 2020).
It is highly reasonable for investors to buy AMD’s stock since they have high yields and the company is more table financially healthy; investing in the company, therefore, guarantees more income or earnings to the investors based on the company’s financial stability and performance over time(Mactrotrends, 2020).
(ii) Historical Stock Prices Analysis for AMD
For the last year, the company’s stock recorded mixed performance. The initial parts of the year recorded higher values with a slower trend witnessed from December. The period beginning February 2021 has already started recording a positive trend in the company’s stock performance. The downward trends are accredited to a period when business activities slumped due to the effects of the Coronavirus pandemic (Barchart.com, 2021). In the future, with the resumption of the business activities and a promising vaccine business has resumed, it will therefore be wise to invest in the company since there are profitable opportunities that the market will perform well and the company is also stable and on a positive trend. With its strong balance sheet and leverage ratios, the company will inevitably continue performing well financially soon (Mactrotrends, 2020).
(iii) Historical Stock Prices For Intel
Intel’s stocks have performed considerably well over the last twelve months. The company’s stock performance peaked in July 2020 and witnessed a low performance over time. Investing in Intel’s stocks wouldn’t be more advisable since the company’s financial performance has been considerably low (Yahoo.com, 2021). Over the three years under review, the company has recorded a fall in its net income with an increasing liabilities list. The company’s liabilities have increased between 2018 and 2020, significantly lowering its leverage ratios and market performance. Investing in the company in its present financial status will most likely not be a wise decision for an investor (Macrotrends, 2021).
Recommendation to the COMPANY’S management
Owing to the company’s financial stability and improved performance, it is recommended that the management consider investing in the less risky stocks and bonds that would facilitate the company’s positioning in a more strategic position. With the company’s strong market position and high rating in the stock market, investing in more bonds will help attract more investors and acquire adequate amounts of finance, which would be essential in expanding the business operations significantly to assist in market diversification.
Raising capital through attracting more investors to buy more stocks and bonds will be a source of adequate funds to help meet the financial requirements to implement the company’s strategies and operations.
Reflection
This assignment has essentially equipped me with the knowledge of how to make investment decisions in a company. There is a need for critically analyzing the financial health of a company before investing in the company. Establishing a company’s financial health entails comprehensive consideration of the various leverage ratio, historical stock performance of the company. With the right considerations, it will be essential that the factors evaluated should help inform the right decision to invest in the right company with robust financial health and is more promising in its performance.
References
Akhmetshin, E. M., Artemova, E. I., Vermennikova, L. V., Shichiyakh, R. A., Prodanova, N. A., & Kuchukova, N. M. (2017). Management of investment attractiveness of enterprises: Principles, methods, organization. International Journal of Applied Business and Economic Research, 15(23), 71-82.
Barchart.com. (2021). AMD – Advanced Micro Devices Stock Performance Report – Barchart.com. Barchart.com.https://www.barchart.com/stocks/quotes/AMD/performance.
Macrotrends. (2021). Intel Balance Sheet 2005-2021 | INTC. Macrotrends.net. https://www.macrotrends.net/stocks/charts/INTC/intel/balance-sheet.
Mactrotrends. (2020). AMD Balance Sheet 2005-2021 | AMD. Macrotrends.net. https://www.macrotrends.net/stocks/charts/AMD/amd/balance-sheet.
Osadchy, E. A., Akhmetshin, E. M., Amirova, E. F., Bochkareva, T. N., Gazizyanova, Y., & Yumashev, A. V. (2018). Financial statements of a company as an information base for decision-making in a transforming economy
Yahoo.com. (2021). Yahoo is now a part of Verizon Media. Finance.yahoo.com https://finance.yahoo.com/quote/INTC/
References
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