Key Performance Management Metrics of NVIDIA and Intel
The risk analysis work you did in the first assignment was a great start. It helped to paint a picture of where NVIDIA (NASDAQ: NVDA) and Intel (NASDAQ: INTC) are in their corporate lifecycles, the threats and opportunities each faces, and the defensibility of their economic moats – a metaphor that Buffett loves to use.
In this assignment, you will continue your analysis by comparing key performance management metrics of our two companies, identifying areas of relative strength and weakness, and suggesting ways that each company could improve, thereby increasing its valuation. To do this, you will examine trends in order to identify variances and comparisons to: (1) establish benchmarks, (2) identify best practices, and (3) look for signs of superior performance. This analysis is critical in determining the value of each company, as well as evaluating whether potential acquisition or merger opportunities exist which could create greater value and synergies than those of operating the companies as separate entities.
Summarize your Analysis and Recommendations by answering the following questions:
i. Performance Metrics:
a. Which company is a more efficient generator of income?
b. Which company is growing faster?
c. Using financial health ratios, which company is more profitable?
d. Which company has stronger valuation ratios?
e. Overall, which is the better run company and why?
ii. Merger Synergies:
a. If there was an acquisition, which company is the most likely acquirer? Why?
b. Would you recommend a merger or acquisition to increase the moat strength of the combined companies? Why or why not?
• If you support a merger or acquisition, identify 3 performance metrics that could be improved by a merger and explain how they would be improved. Guidance for this is found in Chapter 6 of The CFO Guidebook.
• If you do not support a merger or acquisition, explain your rationale and why the value of each company is best preserved/increased by remaining separate. The guidance for this is found in Chapter 6 of The CFO Guidebook.
Format your written responses for Analysis and Recommendation as follows:
• Typed, double-spaced, professional font (size 10-12), including headings and subheadings (to identify main topics and subtopics), with one-inch margins on all sides.
• References must be included and provide appropriate information that enables the reader to locate the original source.
o Application and analysis of course materials and resources is expected.
o At least one additional source beyond the course materials must be cited to support your analysis and recommendations.
• Include a cover page containing the title of the assignment, your name, the professor’s name, the course title, and the date.
• The maximum length is 4 pages, excluding your cover page, completed worksheets, and reference list.
Performance Management and Valuation
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Performance Management and Valuation
* Performance Metrics:
* Which company is a more efficient generator of income?
Two financial ratios that can help identify the more efficient income generator between NVIDIA and Intel are gross profit margin and EBITDA (earnings before interest, taxes, depreciation, and amortisation). NVIDIA’s latest twelve months gross profit margin and EBITDA are 57.8% and $7.365 billion (a 24.31% decline from the previous year), respectively. Conversely, Intel’s latest twelve months gross profit margin and EBITDA are 46.6% and $21.277 billion (a 33.66% decline from the previous year), respectively. The two financial ratios indicate that NVIDIA is the more efficient income generator. Although Intel generates more income than NVIDIA, the latter has a better gross profit margin and EBITDA.
* Which company is growing faster?
Two financial ratios that can help identify the company growing faster between NVIDIA and Intel are revenue growth and EBITDA growth. NVIDIA’s annual revenue for 2021 was $16.67 billion, a 52.73% increase from the $10.91 billion it generated the previous year. The company’s EBITDA for 2021 was $5.63 billion, a 74.47% increase from the $3.227 billion it recorded the previous year. Conversely, Intel’s annual revenue for 2021 was $79.02 billion, a 1.49% increase from the $77.86 billion it generated the previous year. The company’s EBITDA for 2021 was $31.24 billion, a 13% decline from the $35.91 billion it recorded the previous year. Intel may be generating more income than NVIDIA, but the latter is growing faster, as shown by revenue and EBITDA growth.
* Using financial health ratios, which company is more profitable?
Two financial ratios that can help identify the more profitable company between NVIDIA and Intel are return on equity (ROE) and return on invested capital (ROIC). NVIDIA’s last 12-month average ROE was 27.90%, a 16.67% decrease from the 33.49% it recorded the previous 12 months. The company’s last 12-month average ROIC was 18.2%. Conversely, Intel’s last 12-month average ROE was 4.6%: its average ROE for the fiscal years between 2018 and 2022 and 2021 was 12.8%. The company’s last 12-month average ROIC was 1.5%, while the average ROIC for the fiscal years between 2018 and 2022 was 15.1%. Although both companies have seen their ROE and ROIC decrease significantly year over year, the two financial ratios reveal that NVIDIA is more profitable than Intel.
* Which company has stronger valuation ratios?
Two financial ratios that can help identify the company with a stronger valuation between NVIDIA and Intel are price-to-earnings and price-to-cash flow. The price-to-earnings ratio indicates the connection between the price per share and the earnings or net profit, while the price-to-cash flow shows how much cash a company generates regarding its market value. NVIDIA’s average price-to-earnings ratio for the last 12 months was 51.82, while its average free cash flow per share for the last 12 months was $1.90. Conversely, Intel’s average price-to-earnings per share for the last 12 months was 15.22, while its average free cash flow for the last 12 months was $-2.34. The two financial ratios indicate that NVIDIA is valued higher than Intel. Moreover, the former generates enough cash flows to support its activities, although the latter does not have sufficient cash flows for its operations.
* Overall, which is the better-run company and why?
Overall, the better-run comp...