This paper compares and contrasts the economic performance, efficiency, and function by means of analyzing the fashion in operations via ratios.
Nvidia Corporation
Nvidia Corporation is an American-based science enterprise with its headquarters in Santa Clara, California. The company designs photo processing devices for the cryptocurrency, gaming, and expert markets. Additionally, it gives the gadget on chip devices for the automobile and cell computing (Nvidia Corporation, 2017). The commercial enterprise started out in 1993 after the founders Huang Jensen, Curtis Priem, and Malachowsky Chris hypothesized that computing would be modified as both accelerated or photos based.
Advanced Micro Devices, Inc. (AMD)
AMD is an American semiconductor enterprise that additionally operates in different international locations as well. The enterprise has its headquarters in Sunnyvale, California where it develops computer processors and other related technologies for the corporate and individual buyers. The firm's products comprise motherboards chipsets, microprocessors, and graphics processors for servers, and embedded processors among others (AMD, 2017). Currently, both AMD and Nvidia Corporation dominate the market for discrete Graphics Processing Unit.
Comparison and Contrast of Total Revenues for the Immediate Past 3 Years
Table 1: Nvidia Corporation Total Revenues and Percentage Change
Percentage Increase/Decrease (%) January 2017 ($000) Percentage Increase/Decrease (%) January 2016 ($000) January 2015 ($000) 38% 6,910,000 7% 5,010,000 4,682,000
Table 2: Advanced Micro Devices, Inc. (AMD) Total Revenues and Percentage Change
Percentage Increase/Decrease (%) December 2016 ($000) Percentage Increase/Decrease (%) December 2015 ($000) December 2014 ($000) 7% 4,272,000 -27.5% 3,991,000 5,506,000
Discussion
Tables 1 and 2 provide the trend of the past three years revenues of Nvidia Corporation and AMD respectively. Even though these firms are peer competitors in the same sector, their pattern of performance is evidently different. Notably, Nvidia Corporation continuously increased its revenues in the last three years while AMD realized a declining trend (Elango, 2015). In fact, AMD performed best in 2014 while Nvidia Corporation best outcome was in the period ending 2017 (Nvidia Corporation, 2017). The results of Nvidia Corporation can be attributed to its expansion to other markets within and outside the US such as in the Latin America where it acquired additional customers. Also, the business has continually done marketing of its products through various media such as social media, television, website, radio, and magazines. In as much as AMD has also been consistent in marketing its commodities, the management has not in the past few years ventured much in acquiring new markets. Consequently, AMD has not managed attain as much growth in sales income as Nvidia Corporation.
Comparison and Contrast of Profits
Table 3: Nvidia Corporation Profitability Ratios
Ratio Formula January 2017 January 2016 January 2015 Gross Profit Margin Ratio Gross income ÷ net sales 4,063,000 ÷ 6,910,000 = 0.59 2,811,000 ÷ 5,010,000 = 0.56 2,599,000 ÷ 4,682,000 = 0.55 Operating Income Margin Ratio Operating profit ÷ net sales 1,934,000 ÷ 6,910,000 = 0.28 747,000 ÷ 5,010,000 = 0.15 759,000 ÷ 4,682,000 = 0.16 Net Profit Margin Ratio Net income ÷ net sales 1,666,000 ÷ 6,910,000 = 0.24 614,000 ÷ 5,010,000 = 0.12 631,000 ÷ 4,682,000 = 0.13
Table 4: Advanced Micro Devices, Inc. (AMD) Profitability Ratios
Ratio Formula December 2016 December 2015 December 2014 Gross Profit Margin Ratio Gross income ÷ net sales 998,000 ÷ 4,272,000 = 0.23 1,080,000 ÷ 3,991,000 = 0.27 1,839,000 ÷ 5,506,000 = 0.33 Operating Income Margin Ratio Operating profit ÷ net sales -372,000 ÷ 4,272,000 = -0.09 -481,000 ÷ 3,991,000 = -0.12 -155,000 ÷ 5,506,000 = -0.03 Net Profit Margin Ratio Net income ÷ net sales -497,000 ÷ 4,272,000 = -0.12 -660,000 ÷ 3,991,000 = -0.17 -403,000 ÷ 5,506,000 = -0.07
Discussion
Table 3 and 4 show the profitability ratios and their patterns across the two companies in the last three financial periods. Gross Profit Margin Ratio Both Nvidia Corporation and AMD had positive gross profit margin ratios in the past three financial periods, thus, indicating that they sold all the products at prices higher than the costs incurred. However, Nvidia Corporation had more substantial ratios than AMD. The ratios for Nvidia Corporation were more than 50% of the sales revenue in the entire period. Besides, the ratios had a consistent increasing trend (Elango, 2015). On the other hand, AMD's ratios were less than 50%, and the company registered a decreasing pattern. The difference in the ratios for the organizations indicate that Nvidia Corporation managed to minimize its production costs as well as the other pertinent expenses such as shipping and storage of the raw materials more than AMD did. Therefore, the management of AMD might need to minimize the manufacturing expenditure to maximize the gross profit margin. Operating Income Margin Ratio Nvidia Corporation had a positive income margin ratio for the entire period though with a slight decrease in the year ending 2016 January. However, it realized a substantial increase in 2017, a trend that can be attributed to both increases in sales revenue and minimized operating expenses. Concerning AMD, the organization recorded negative income margin ratios in the three years. The AMD's outcome was due to the negative operating profits that the company made (Elango, 2015). The trend is financially undesirable given that the negativity increased in 2015 though with a slight reduction in 2016. In the case that the company fails to generate more revenues and exercise proper control of expenses, the business might continuously make losses. Net Profit Margin Ratio The trend in the net profit margin ratio is the same as the one in the income margin ratio. Nvidia Corporation managed to post positive ratios with observable growth except in 2016 when there was a slight decrease. However, AMD had negative ratios throughout the period. AMD's performance implies that it did not generate any funds from its operations to help boost the existing capital. Moreover, it did not have any surplus amount to pay for dividends. Such a financial outcome is not desirable for the potential and existing shareholders especially if it is consistent and they can consider investing in other companies (Fleay, Poustie, & Mroczkowski, 2011). Additionally, the loaning institutions might also fear to offer loans to such an organization since they might fail to repay such financial obligations. Therefore, the management should employ effective strategies to making profits.
Comparison and Contrast of Operational Efficiency
Table 5: Nvidia Corporation Operational Efficiency Ratios
Ratio Formula January 2017 January 2016 January 2015 Stock Turnover Ratio Cost of sales ÷ average inventory 2,847,000 ÷ (794,000 + 418,000)/2 = 4.7 2,199,000 ÷ (418,000 + 483,000)/2 = 4.9 2,083,000 ÷ (483,000 + 388,000)/2 = 4.8 Asset Turnover Ratio Net sales ÷ average total assets 6,910,000 ÷ (9,841,000 + 7,370,000)/2 = 0.8 5,010,000 ÷ (7,370,000 + 7,201,000)/2 = 0.7 4,682,000 ÷ (7,201,000 + 7,250,000)/2 = 0.6
Table 6: Advanced Micro Devices, Inc. (AMD) Operational Efficiency Ratios
Ratio Formula December 2016 December 2015 December 2014 Stock Turnover Ratio Cost of sales ÷ average inventory 3,274,000 ÷ (751,000 + 678,000)/2 = 4.6 2,911,000 ÷ (678,000 + 685,000)/2 = 4.27 3,667,000 ÷ (685,000 + 884,000)/2 = 4.7 Asset Turnover Ratio Net sales ÷ average total assets 4,272,000 ÷ (3,321,000 + 3,084,000)/2 = 1.3 3,991,000 ÷ (3,084,000 + 3,767,000)/2 = 1.2 5,506,000 ÷ (3,767,000 + 4,340,000)/2 = 1.4 From table 5 and 6, both Nvidia Corporation and AMD had an almost similar stock turnover for the last three financial periods. In each case, Nvidia Corporation had better ratios than AMD though none of the companies reported any particular trend. The higher ratio in Nvidia Corporation implies that the company managed to sell and replace its inventory number at times than AMD. That is a clear indication of more effective marketing strategies by the management of Nvidia Corporation than AMD (Fleay, Poustie, & Mroczkowski, 2011). Meanwhile, lack of a specific pattern for the businesses portrays the difference in the economic environment and the efforts put by each organization. For instance, Nvidia Corporation registered an increase in the second year and a drop in the third period while AMD realized a decline than an increase in the second and third years respectively. The two companies posted financially desirable asset turnover ratios given that they were all positive in the three years under review. The ratios indicate that the firms could generate substantial income from the assets employed. Nevertheless, AMD posted better results than Nvidia Corporation because it had higher ratios throughout the periods. It means that it had a more efficient approach to maximizing the income from the investments such as the maximum utilization of fixed assets by minimizing the idle time through adequate maintenance and training of employees (Fleay, Poustie, & Mroczkowski, 2011). Typically, well-serviced machinery does not encounter numerous instances of breakdown that can delay its operations. Additionally, professional workers know how to maximize the use of such resources and to avoid misuse that can lead to unexpected machine failures that cause a stoppage in the production process. Despite AMD having higher asset turnover ratios, Nvidia Corporation posted a better pattern of consistent increase in the ratios during the last three financial periods. AMD had the highest ratio in the first year but ended up reducing in the second period, though with a slight increase in the third year. Therefore, a continued focus on maximizing the use of assets will make it possible for Nvidia Corporation to generate a higher asset turnover ratio in the subsequent periods. Nvidia Corporation further proved to be more profitable than AMD because it managed to produce net profits throughout the periods while AMD has a net loss (Simmons & Hardy, 2011). Notably, the results imply that Nvidia Corporation was more effective in generating sufficient revenues to cover its expenses. Moreover, the administration adequately minimized the costs of operation to generate net income.
Comparison and Contrast of Liquidity
Table 7: Nvidia Corporation Liquidity Ratios
Ratio Formula January 2017 January 2016 January 2015 Current Ratio Current Assets ÷ current liabilities 8,536,000 ÷ 1,788,000 = 4.8 6,053,000 ÷ 2,351,000 = 2.6 5,713,000 ÷ 896,000 = 6.4 Quick Ratio (Current Assets – inventories) ÷ current liabilities (8,536,000 – 794,000) ÷ 1,788,000 = 4.3 (6,053,000 – 418,000) ÷ 2,351,000 = 2.4 (5,713,000 – 483,000) ÷ 896,000 = 5.8
Table 8: Advanced Micro Devices, Inc. (AMD) Liquidity Ratios
Ratio Formula December 2016 December 2015 December 2014 Current Ratio Current Assets ÷ current liabilities 2,530,000 ÷ 1,346,000 = 1.9 2,320,000 ÷ 1,403,000 = 1.7 2,736,000 ÷ 1,440,000 = 1.9 Quick Ratio (Current Assets – inventories) ÷ current liabilities (2,530,000 - 751,000) ÷ 1,346,000 = 1.3 (2,320,000 – 678,000) ÷ 1,403,000 = 1.2 (2,736,000 – 685,000) ÷ 1,440,000 = 1.4
Discussion
Table 7 and 8 show the liquidity ratios of both Nvidia Corporation and AMD for the past three years of financial operations. The companies recorded similar trends in current and quick ratios whereby they had the highest performances in 2014/2015 then a drop in 2015/2016 and finally a slight increase in the latest year. The decline in the second year for Nvidia Corporation is attributed to the increase in current liabilities. Seemingly, the company engaged in expanding its operations and had to use the available funds to facilitate the expansion as opposed to using cash for purchases. On the other hand, the reduction in liquidity ratio for AMD was due to the decreased amount of current assets (Simmons & Hardy, 2011). Despite the inconsistent pattern, the two companies posted financially desirable outcomes given that they had ratios of more than 1. The implication is that the businesses could pay for all their short-term obligations using the current assets. In as much Nvidia Corporation might seem to have better ratios than AMD, one can relate the scenario that Nvidia Corporation's management hinders its ability to use the available resources for expansion. However, AMD may be focused on enlargement, thus, the reason for not keeping much current assets such as cash for the daily operations (Simmons & Hardy, 2011). Nevertheless, Nvidia Corporation could still be more engaged in expansion activities than AMD by acquiring investment loans that the management puts into business immediately.
Conclusion
Even though Nvidia Corporation and AMD are close competitors, their performance level still varies in several aspects. However, the discrepancy is expected since the management of the firms employs different approaches to doing business with the focus on being the best performer in the market. Concerning the revenues of the companies, both the two corporations had positive figures except that Nvidia Corporation had more consistency of increase than AMD that showed a decline in the second year. Nvidia Corporation further proved to be more profitable than AMD because it managed to generate net profits throughout the periods while AMD has a net loss. Notably, the results imply that Nvidia Corporation was more effective in producing sufficient revenues to cover its expenses. Moreover, the administration adequately minimized the costs of operation to generate net income. Regarding operational efficiency, both the competitors had almost a similar stock turnover in the entire period under study. However, AMD had better asset turnover ratios that imply an adequate utilization of the assets than Nvidia Corporation. Meanwhile, Nvidia Corporation seems to have employed proper approaches towards improving their asset turnover. Lastly, Nvidia Corporation posted greater liquidity than AMD because it had bigger current and quick ratios for the entire time. However, even AMD had financially sound ratios of more than one. The liquidity results indicate that the firms could repay their short-term obligations using the current assets without the need to sell any of the fixed assets. Despite the amount of liquidity ratio, the interpretation is subject to the analysis of the users of the financial statements. Notably, one might see the company with smaller liquidity ratios to be more efficient in the sense that it prefers to use its funds for further expansion while utilizing short-term liabilities to manage the daily operations.
References
Nvidia Corporation (2017). Income statement. Retrieved on 17th December 2017 Elango, B. (2015). Service industry databook: Understanding and analyzing sector specific data across 15 nations. Cham: Springer. Fleay, D., Poustie, N., & Mroczkowski, N. A. (2011). TAFE accounting: Financial accounting applications. South Melbourne, Vic: Cengage Learning Australia. Simmons, A., & Hardy, R. (2011). Cambridge VCE accounting units 1 & 2. Cambridge: Cambridge University Press. AMD (2017). Income statement. Retrieved on 17th December 2017
