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Introduction
As per the PMI website, a project has phases/stages, and deadlines are assigned to each of the phases/stages. The stages should be complete as per the deadlines decided at the start of the project. Project management also includes an arrangement of resources, ensuring the quality of output, and identifying and removing hurdles as they appear and hinder project flow.
Contribution of Factors to Management of Projects
Financial factors – Positive Side
Financial factors mainly include “Budgeting of project” and Project budgeting is done at the start of the project. The project budget consists of costs of appraisal of the project, running the project, and conclusion of the project.
Financial management of projects can be done with the help of a system. Finances can be managed with the help of a system, it's controlling and recording. The system will ensure transparency for all stakeholders, such as executors and donors. Management of projects with the help of the system will keep all the stakeholders informed about the progress of the project. There will be fewer number disputes between the stakeholders (Kerzner and Kerzner, 2017). The government will also be satisfied as tax payments will be made through the system. Such payments will be more accurate as processed through the system. Furthermore, someone will have to take responsibility for the system., as running the system will require more expertise. Systems may include PeopleSoft financials, Oracle financials, SAP, etc. These systems also help in further ways such as time-saving by a speedy recording of transactions, appropriate recording, various management reports that allow for project evaluation, and various others.
Financial factors – Negative Side
Projects require a sufficient amount of finance, and in some cases, a high amount of initial outlay is required. Funds will also be required during the other phases of the project such as execution/ performance and control. Inadequate finances may lead to project halts or delays. Funds may be provided from an internal source or through an external source.
Funds may be arranged through equity, debt, debentures, retained earnings, term loans, working capital loans, letters of credit, euro issues, or venture funding. Long-term sources include Share Capital / Equity Shares, Retained Earnings or Internal Accruals, Preference Capital or Preference Shares, Term Loans from Financial Institutes, Debenture or Bonds, Venture Funding, Government, and Commercial Banks, Asset Securitization, International Financing by way of Euro Issue, ADR, GDR, and Foreign Currency Loans. Medium-term sources of finance include Preference Shares, Debenture or Bonds, Lease Finance and Hire Purchase Finance, and Medium Term Loans from Financial Institutes, Government, and Commercial Banks. Short-term sources of finance include Trade Credit, Short Term Loans like Working Capital Loans from Commercial Banks, Fixed Deposits for 1 year or less, Advances received from customers, Creditors, Payables, Factoring Services Bill Discounting, etc. (Harrison and Lock, 2017). So, if the finance is not provided to any project then it would affect adversely in two ways, the first being its discontinuation and the second being the damage to the work done to date
Financial Evaluation
In addition to above mentioned positive and negative sides, financial evaluation is also necessary to explain. The project should contribute towards sales of the organization and thus profit and also the share price. This evaluation is made with the help of various calculations such as payback period, Net Present Value calculation, and Internal Rate of Return.
The payback period is calculated as follows:
|
Payback period = |
Initial outlay |
(in years) |
|
Annual profit |
Net Present Value is calculated as:
Present values of cash inflows - the present value of cash outflows
The internal Rate of Return is calculated as:
Discount factor at which present value of cash inflows = present value of outflows
Each evaluation method has its own merits and demerits. As the payback period does not consider the discount rate as well as the time value of money, whereas IRR does not consider the term period of return. In addition to the financial factors, there are non-financial factors also that affect the project management such as availability of raw material, power and other basic amenities, motivation, location or site, technology, environment, personnel, etc.
Cost Factors:
There are various types of costs included in a project for instance. The cost of land, construction cost, cost of material used, architecture cost, and various others. It should also be noted that the project cost also varies from a geographical perspective and will be more inflating than in rural or remote areas. Moreover, other cost factor includes, the negotiating terms with the supplier, the variance report i.e. budgeted cost vs. actual cost, and its variance control.
Cost Management Negative Side
The concerned management also plays an important role. An affluent project with poor management can demolish the project along with the capital invested in it whereas. There could be many factors that accelerate poor management such as; lack of mutual understanding and communication between the members, bad planning that leads to astray, failure in the identification of problems and problem-solving strategies, etc. (E.U) (Larson and Gray, 2013). The changes in design can change the cost too. The innovation or addition to the existing design requires more time input and extra effort from the members of the project. The service men for the concerned task are going to charge an additional amount along with the suppliers for their increased supply of goods and stuff. (E.U)
Cost Management Positive Side
A substandard or mediocre project with healthy and sound management can lead to success giving rise to the profits of the organization and returns on investment. Moreover, if the project involves international exposure then the fluctuations in the forex market stimulate some other major problems or benefits if proper hedging strategies are in place. If the services or the materials of the project are being shopped from member countries then; it precipitates the problem of exchange rate or could also yield exchange rate gains. Another positive side of cost management could be from the contract with the pre-specified breakup-wise cost, so that later when cost fluctuates, the project does not get any negative hit (Schwalbe, 2015).
Commercial Factors:
Below are mentioned the succumbed commercial factors that influence the project management.
Commercial factors – Negative side
The economic environment in the world and within a nation has a great impact on project management. The wars, strikes, terrorist attacks, political dramas, and protests make the global market un-reachable. The currency devaluation also drops the major commercial enterprises in the long run. As a result, the flow of the project management gets affected. However, this is a systematic risk that is beyond human control and only precautionary measures can be taken (Nixon, Harrington, and Parker, 2012, p.204). Finance is another dominant factor in project management directly linked to commercial factors. Such as the process of obtaining all the required finances, maintaining the gearing, rebating the tax liabilities, reimbursement of money, investment of the capital, paying interest on the loan, and payment of dividends to the stakeholders of the organization becomes difficult to manage if commercial factors (mentioned above) are not well.
Commercial factor – Positive side
However, the movement of the interest rates can be managed using swaps (a type of derivative) if the loan is obtained for the project. There are Interest Rate Swaps (IRS) available in the market with their fixed and floating rates. The tax liabilities can also be controlled by replicating the cash flows using the financial instruments available in the global market (bonds) if the gearing is not good enough and part of the equity in the capital invested is far more than the liability (Hwang and Ng, 2013, p.272). The state law also influences the management of projects. Certain legal sanctions halt the project to proceed with 
inflow and such hindrances can lead to the failure of the project.
Since there are certain laws in every part of the world so; they must be taken into account before initiating the project. If the laws are paid heed to at the beginning of the project, the flow of the work will not be broken. Hence, the project will be successful. The rapidly growing technology is also adding to the commercial growth of the business. If the project is handled with the appropriate advanced technology, it can reduce the overall cost of the project. With good technology, less number of people will be hired. Ultimately, the cost is reduced and the project can run efficiently having minimum chances of error (Fleming and Koppelman, 2016).
Financial as well as commercial and cost factors all contribute to the success or failure of a project. As each of these three factors has its own positive and negative sides and it depends upon the management how they manage these factors.
Part 2
Financial Statement Analysis
Abstract
The report analyses and critically evaluates Intel’s and Cisco’s financial results. Where it is found that Intel is experiencing degrading performance as compared to the rival companies; however, it is still worth investing and the share price is witnessing a positive trend. Moreover, Cisco’s results are also not very much appreciated. All of these details and mentioned and explained below in detail.
Summary of the Basic Company Information
Brief History
In 1968, Robert Noyce and Gordon Moore, two unhappy engineers working for the Fairchild Semiconductor Company, decided to quit and create their own company at a time when many Fairchild employees were leaving to create start-ups. Robert Noyce typed himself a one-page idea of what he wanted to do with his new company, and that was enough to convince San Francisco venture capitalist Art Rock to back Noyce's and Moore's new venture (Cisco, 2017). Rock raised 2.5 million dollars in less than 2 days by selling convertible debentures. Art Rock became the first chairmen of Intel (Intc.com, 2017).
In the areas of industry membership, main business, and principal location, Intel ranks at the top of the semiconductor industry, followed by Samsung, SK Hynix, Qualcomm, Micron Technology, Texas Instruments, Toshiba, Broadcom, STMicroelectronics, Infineon Technologies whereas, in some places, it is said that Samsung ranks above Intel.
Main Business
As per Intel’s website, its main products are systems and devices, processors, boards (including chipsets) and kits, memory, and storage modules, server products, networking products, software, gateways, FPGAs, and technologies. Intel is the top-notch manufacturer of these products. As per Brian M. Krzanich (Chief Executive Officer of Intel) through the Annual Report, Intel is changing from a PC-centric company to a data-centric company, delivering products that play critical roles in processing, storing, analyzing, and sharing data to enable amazing new experiences and competitive advantages.
Principal Location
The principal location is the US office situated in California.
Competitive Environment
The semiconductor industry is highly competitive; there are numerous competitors in the market as mentioned above. In recent years, Intel has been overtaken by Samsung as the leading microchip manufacturer. As Samsung grows in mobile chip manufacturing, it beats Intel. The industry evolves continuously with innovative technologies and products from manufacturers. The marketplace can alter rapidly in response to the introduction of these technologies and products and factors such as changes in customer and end-user requirements, expectations, and preferences.
Brief Financial Information ─ a Five-year Financial Review - Intel
2017 | 2016 | 2015 | 2014 | 2013 | |
|---|---|---|---|---|---|
$ in millions | |||||
Statement of Comprehensive Income |
| ||||
Sales | 62,761 | 59,387 | 55,355 | 55,870 | 52,708 |
Cost of Sales | 23,692 | 23,196 | 20,676 | 20,261 | 21,187 |
Gross Profit | 39,069 | 36,191 | 34,679 | 35,609 | 31,521 |
Expenses | 21,133 | 23,317 | 20,677 | 20,262 | 19,230 |
Operating Profit | 17,936 | 12,874 | 14,002 | 15,347 | 12,291 |
Finance Cost | 235 | 444 | 105 | 43 | 151 |
Tax | 10,751 | 2,620 | 2,792 | 4,097 | 2,991 |
Net Profit | 6,950 | 9,810 | 11,105 | 11,207 | 9,149 |
Statement of Financial Position | |||||
Fixed Assets | 93,749 | 77,819 | 62,699 | 64,226 | 60,274 |
Current Assets | 29,500 | 35,508 | 40,356 | 27,730 | 32,084 |
Total | 123,249 | 113,327 | 103,055 | 91,956 | 92,358 |
Current Liabilities | 17,421 | 20,302 | 15,667 | 16,019 | 13,568 |
Capital Employed | 105,828 | 93,025 | 87,388 | 75,937 | 78,790 |
Capital/Reserves | 69,885 | 67,108 | 61,982 | 56,777 | 58,256 |
Long-term Liabilities | 35,943 | 25,917 | 25,416 | 19,160 | 20,534 |
Equity and long-term loan | 105,828 | 93,025 | 87,398 | 75,937 | 78,790 |
Net increase(decrease) cash flow | (2,127) | (9,748) | 12,747 | (3,113) | (2,804) |
Ratios | |||||
Asset Turnover(times) | 0.51 | 0.52 | 0.54 | 0.61 | 0.57 |
Employees(number) | 107,600 | 106,000 | 107,300 | 106,700 | 107,600 |
EPS(basic) | 2.04 | 2.18 | 2.41 | 2.39 | 1.94 |
Dividend per share | 1.08 | 1.04 | 0.96 | 0.9 | 0.9 |
Dividend cover(times) | 0.73 | 0.50 | 0.41 | 0.39 | 0.49 |
Inventory Turnover(times) | 3.39 | 4.18 | 4.00 | 4.74 | 5.08 |
Gearing (debt : equity) | 0.34 | 0.28 | 0.29 | 0.25 | 0.26 |
Interest Cover(times) | 76.32 | 29.00 | 133.35 | 356.91 | 81.40 |
Table A: Five-year financial review | |||||
Evaluation of Financial Statements: A Comparative Analysis
The market capitalization of the companies in comparison (Intel and Cisco) is as follows:
Billion $ | Intel | Cisco |
Market Capitalization | 245 | 208 |
Table B – market capitalization | ||
Due to the comparability of the sizes of the two companies, we perform a financial analysis on the performance and standing of both companies with the help of ratios.
Liquidity
The liquidity of the company is on a downward slope however the trend is erratic from the years 2013 to 2017. The reason for the erratic graph is due to the fluctuation in the current assets and current liabilities of Intel. Overall, the current ratio is above 1 for all the periods in consideration. Therefore, the company is not in a bad situation to pay its creditors and meet its short-term liabilities. This can be witnessed through the current ratio graph (see figure 1).
However, when we compare the ratio with competing company Cisco, we notice that Intel has almost half the current ratio as compared to Cisco. This is can be seen through the graph in figure 2. The main reason for a healthy current ratio of Cisco is investments, which compared to Intel are of a sufficiently large amount (Financials.morningstar.com, 2017).
Furthermore, when we analyze the acid test ratio of Intel in recent years, we observe the same trend as when analyzing the current ratio. Please refer to figures 3 and 4 in the appendix.
Efficiency
Efficiency ratios | 2013 | 2014 | 2015 | 2016 | 2017 |
Days inventory | 76.71 | 76.07 | 83.32 | 84.34 | 96.57 |
Day Sales Outstanding | 25.67 | 26.16 | 30.38 | 29.12 | 29.94 |
Payables period | 51.61 | 51.5 | 42.47 | 35.7 | 41.62 |
Working capital cycle | 153.99 | 153.73 | 156.17 | 149.16 | 168.13 |
Table C - Efficiency ratios in comparison | |||||
When analyzing the efficiency ratios, we found a stable increase in the numbers except for the payables period which showed a decline in 2016. It is quite disturbing to see the inventories period increase over the years. This means it is taking more time to convert inventory into money. For a larger amount of time inventory is being held as stock. The receivables period is also increasing means debtors are taking longer to settle the amount due. It is unhealthy to take longer to collect the receivables (Financials.morningstar.com, 2017).
The payables period is decreasing which means it is taking less time to settle our creditors, which is commercially unhealthy. The overall working capital cycle is also increasing which means overall it's taking longer to convert the money invested in working capital back to money. The reason behind this is unhealthy credit terms with the debtors and creditors and funds stuck in stock.
When comparing the efficiency ratios of Intel with Cisco for the year 2017 we found that the debtor's collection period of Cisco is higher than Intel, whereas all other ratios are lower than Intel. The same can be observed in figure 5.
Profitability
When analyzing the profitability ratios, once again we see an erratic trend in the ratios. Overall we observe a decline in net profit margin. The same can be seen in figure 6.
The net profit margin of Intel when compared to Cisco is lower as well as the operating profit margin (when Intel is compared to Cisco). The reason is the drastic difference in revenue. When comparing Intel and Cisco, the return on capital employed by Intel is higher than Cisco (Financials.morningstar.com, 2017).
Investor ratios
When comparing the owners’ equity ratio we found that the graph is erratic however the overall trend is positive. See figure 7 for details. Further, when comparing the earnings per share we come to the same conclusion. See figure 8 for details. The dividend yield is on the rising trend when we consider the period of recent few years. Whereas, the dividend cover is on an overall declining trend.
Solvency Ratio
The solvency ratios calculated for Intel are also on a downward trend. See the table below for details:
2013 | 2014 | 2015 | 2016 | 2017 | |
Solvency ratios | 0.28 | 0.32 | 0.27 | 0.22 | 0.18 |
Horizontal Analysis - Cisco
Statement of Comprehensive Income | 2017 | 2016 | Difference | % |
Sales | 62,761 | 59,387 | 3,374 | 6% |
Cost of Sales | 23,692 | 23,196 | 496 | 2% |
Gross Profit | 39,069 | 36,191 | 2,878 | 8% |
Expenses | 21,133 | 23,317 | (2,184) | -9% |
Operating Profit | 17,936 | 12,874 | 5,062 | 39% |
Finance Cost | 235 | 444 | (209) | -47% |
Tax | 10,751 | 2,620 | 8,131 | 310% |
Net Profit | 6,950 | 9,810 | (2,860) | -29% |
Statement of Financial Position | ||||
Fixed Assets | 93,749 | 77,819 | 15,930 | 20% |
Current Assets | 29,500 | 35,508 | (6,008) | -17% |
Total | 123,249 | 113,327 | 9,922 | 9% |
Current Liabilities | 17,421 | 20,302 | (2,881) | -14% |
Capital Employed | 105,828 | 93,025 | 12,803 | 14% |
Capital / Reserves | 69,885 | 67,108 | 2,777 | 4% |
Long term Liabilities | 35,943 | 25,917 | 10,026 | 39% |
Equity and long-term loan | 105,828 | 93,025 | 12,803 | 14% |
Table E - Horizontal Analysis |
Vertical Analysis - Cisco
Statement of Comprehensive Income | 2017 | 2017 | 2016 | 2016 |
|---|---|---|---|---|
| Amount | Percent | Amount | Percent |
Sales | 62,761 | 100% | 59,387 | 100% |
Cost of Sales | 23,692 | 38% | 23,196 | 39% |
Gross Profit | 39,069 | 62% | 36,191 | 61% |
Expenses | 21,133 | 34% | 23,317 | 39% |
Operating Profit | 17,936 | 29% | 12,874 | 22% |
Finance Cost | 235 | 0% | 444 | 1% |
Tax | 10,751 | 17% | 2,620 | 4% |
Net Profit | 6,950 | 11% | 9,810 | 17% |
Statement of Financial Position | Amount | Percent | Amount | Percent |
Fixed Assets | 93,749 | 89% | 77,819 | 84% |
Current Assets | 29,500 | 28% | 35,508 | 38% |
Total | 123,249 | 116% | 113,327 | 122% |
Current Liabilities | 17,421 | 16% | 20,302 | 22% |
Capital Employed | 105,828 | 100% | 93,025 | 100% |
Capital / Reserves | 69,885 | 66% | 67,108 | 72% |
Long term Liabilities | 35,943 | 34% | 25,917 | 28% |
Equity and long-term loan | 105,828 | 100% | 93,025 | 100% |
Table F - Vertical Analysis |
|
|
|
|
Share Price Chart
The share price chart is showing a positive trend
Conclusion
The overall performance of Intel as compared to the past performance of Intel is declining majorly because of competition by Samsung and AMD and other suppliers. Further comparing the performance to Cisco, it is also not showing positive signs as Cisco is more liquid, more efficient, and more profitable as compared to Intel. The investor ratios are better for Intel when compared with Cisco. This means it still has potential for investment as a public company. Other than the dividend yield ratio, the three ratios (return on owners’ equity, earnings per share, and dividend cover) are all positive for Intel, when compared with Cisco. The credit assessment through the liquidity and solvency ratios is as follows:
Cisco has an overall improved liquidity ratio than Intel, however, Intel has a better solvency ratio. That means the overall solvency of Intel is better than Cisco majorly because Cisco has more liabilities as compared to Intel.
Limitations of Ratio Analysis through financial statements historical information can be compared only because of the availability of data; the rate of inflation is not impacted by the figures, therefore this becomes a limitation of the analysis as the change in the ratio may be due to inflation; the comparison company “CISCO” is not purely Microprocessor Company but is more of a network interface cards company; the ratios and figures are dependent on the accounting policies applied by the company Intel and Cisco, which may vary. Therefore, the difference in financial statement figures may be due to changes in accounting policies and estimates rather than performance or decisions made by the company; two companies in comparison may be following different strategies; therefore the comparison may be meaningless.
References
Cisco, A. (2017). Annual Reports. [online] Cisco. Available at: https://www.cisco.com/c/en/us/about/annual-reports.html [Accessed 19 Apr. 2018].
Financials.morningstar.com. (2017). Growth, Profitability, and Financial Ratios for Intel Corp (INTC) from Morningstar.com. [online] Available at: http://financials.morningstar.com/ratios/r.html?t=INTC [Accessed 19 Apr. 2018].
Financials.morningstar.com. (2017). Growth, Profitability, and Financial Ratios for Cisco Systems Inc (CSCO) from Morningstar.com. [online] Available at: http://financials.morningstar.com/ratios/r.html?t=CSCO [Accessed 19 Apr. 2018].
Fleming, Q.W. and Koppelman, J.M., 2016, December. Earned value project management. Project Management Institute.
Harrison, F., and Lock, D., 2017. Advanced project management: a structured approach. Routledge.
Hwang, B.G. and Ng, W.J., 2013. Project management knowledge and skills for green construction: Overcoming challenges. International Journal of Project Management, 31(2), pp.272-284.
Intc.com. (2017). Intel Corporation - Investor Relations - Financials & Filings - Annual Reports & Proxy. [online] Available at: https://www.intc.com/investor-relations/financials-and-filings/annual-reports-and-proxy/default.aspx [Accessed 19 Apr. 2018].
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.
Larson, E.W. and Gray, C., 2013. Project management: The managerial process with MS project. McGraw-Hill.
Nixon, P., Harrington, M. and Parker, D., 2012. Leadership performance is significant to project success or failure: a critical analysis. International Journal of productivity and performance management, 61(2), pp.204-216.
Schwalbe, K., 2015. Information technology project management. Cengage Learning.
Appendices
Appendix A
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