Unveiling the Financial Performance of Advanced Micro Devices (AMD)
Table of Contents
- Introduction
- Overview of Advanced Micro Devices (AMD)
- Company Background
- Operating Segments
- Reviewing AMD's Key Ratios
- Revenue
- Operating Income
- Net Income
- Dividends
- Shares Outstanding
- Book Value per Share
- Free Cash Flow
- Profitability Ratios
- Interest Coverage
- Financial Health of AMD
- Current Ratio
- Quick Ratio
- Financial Leverage
- Debt to Equity Ratio
- Efficiency Ratios of AMD
- Days Sales Outstanding
- Days Inventory
- Payables Period
- Inventory Turnover
- Comparison of AMD's Valuation to S&P 500
- Discounted Cash Flow (DCF) Analysis for AMD
- Expected Rate of Return Calculation
- Arbitrage Opportunity with the Xilinx Merger
- Conclusion
🚀 Introduction
Welcome back to another video on my Channel! Today, we will be diving into the world of stocks and discussing a company that has been suggested by one of our subscribers – Advanced Micro Devices (AMD). In this video, we will be conducting a comprehensive review of AMD's operating segments, analyzing key financial ratios, evaluating the company's financial health, and exploring potential investment opportunities. So, let's jump right in and review the fascinating world of AMD!
🏢 Overview of Advanced Micro Devices (AMD)
Let's start by getting familiar with Advanced Micro Devices (AMD) and understanding its background. AMD is a leading semiconductor company that specializes in the design and manufacturing of high-performance computing and graphics products. With a strong focus on innovation and cutting-edge technology, AMD has been a key player in the industry for many years.
Company Background
AMD was founded in 1969 and has since grown to become a major competitor in the technology sector. Over the years, the company has established itself as a leader in several key markets, including desktop and notebook processors, chipsets, and graphics processing units (GPUs). Additionally, AMD has a significant presence in the data center, professional GPUs, and development services sectors.
Operating Segments
AMD's operations are divided into two primary segments: Computing and Graphics, and Enterprise, Embedded, and Semi-Custom.
Computing and Graphics Segment
The Computing and Graphics segment primarily includes desktop and notebook processors, chipsets, and both discrete and integrated GPUs. This segment also encompasses data center and professional GPUs, as well as development services. Over the past few years, the Computing and Graphics segment has experienced significant growth, outperforming the Enterprise, Embedded, and Semi-Custom segment.
Enterprise, Embedded, and Semi-Custom Segment
The Enterprise, Embedded, and Semi-Custom segment focuses on server and embedded processors, semi-custom system-on-chip products, development services, and technology for Game consoles. Similar to the Computing and Graphics segment, this segment may also involve the sale or licensing of certain portions of AMD's intellectual property portfolio.
In addition to these two reportable segments, AMD has an "All Other" category, which primarily includes expenses related to employee stock-based compensation.
Throughout this annual report, AMD provides detailed information on the net revenue and operating income generated by each segment over the past three years. It is evident from the report that the Computing and Graphics segment has shown stronger growth and higher operating margin compared to the Enterprise, Embedded, and Semi-Custom segment.
Stay tuned as we explore further details and uncover interesting insights about AMD's key ratios and financial performance!
✨ Reviewing AMD's Key Ratios
To gain a deeper understanding of AMD's business fundamentals, let's examine some key financial ratios that shed light on the company's performance.
Revenue
Revenue, as the top line of the income statement, represents the amount of money AMD generates from its sales. Over the past decade, AMD's revenue has exhibited a positive growth trajectory. In 2011, the company generated approximately $6.5 billion in revenue, and this figure climbed to about $9.7 billion in 2020. Despite a temporary decline in 2015, AMD has shown consistent growth in its top-line results.
Operating Income
Operating income provides insights into the profitability of AMD's operations after deducting the cost of goods and other operating expenses. In 2011, AMD's operating income stood at around $466 million, and by 2020, it had reached $1.3 billion. It is worth noting that AMD experienced negative operating income in certain years, particularly in 2012, 2015, and 2016, which indicates that the company's expenses exceeded its sales during those periods. However, since 2017, operating income for both segments has been on the rise.
Net Income
Net income represents the bottom line of the income statement and reflects the amount of money left with AMD after paying for various expenses, such as cost of goods, operating and non-operating expenses, interest on debt obligations, and taxes. AMD reported a net income of $491 million in 2012, followed by several years of losses. However, since 2017, the company has consistently reported positive net income, which reached approximately $2.5 billion in 2020.
Dividends
Unlike many established companies, AMD does not currently pay out dividends to its shareholders. Instead, the company prefers to reinvest its capital in its core business, believing that this approach will yield greater long-term value for shareholders.
Shares Outstanding
The number of shares outstanding represents the total count of shares issued by AMD. In 2011, the company had 742 million shares outstanding, which increased to approximately 1,207 million shares by 2020. It is generally preferable for investors to see a decrease in the number of shares outstanding over time, as this indicates that the company is buying back its own shares, thus increasing the ownership stake of existing shareholders. However, in AMD's case, the number of shares outstanding has been steadily increasing since 2012, diluting the ownership of existing shareholders.
Book Value per Share
Book value per share is calculated by subtracting the company's total liabilities from its total assets and then dividing the result by the number of shares outstanding. In 2011, AMD's book value per share was approximately $2.5, and by the trailing 12 months ending in 2020, it had risen to $4.82. Due to a higher number of liabilities than assets, there was a negative book value per share in 2015. However, since 2016, AMD has witnessed a consistent increase in its book value per share.
Free Cash Flow
Free cash flow represents the cash generated by AMD's operations after deducting capital spending from its operating cash flow. In 2011, AMD's free cash flow amounted to $132 million, and by 2020, it had reached $777 million. It is preferable for investors to see positive, steady, or increasing free cash flow. The past 10 years of free cash flow will be used to calculate the expected rate of return, with the 2020 figure of $777 million being utilized for the discounted free cash flow analysis.
Stay with me as we delve deeper into AMD's profitability, financial health, and efficiency ratios to get a complete understanding of the company's financial performance.
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