Dell Case Analysis

545 words - 3 pages

Dell Computer Corporation designed, manufactured and sold high performance personal computers. Initially it started by upgrading IBM computers then they began to market and sale its own brand. They followed built-to-order model which enabled Dell to have a much smaller working capital requirement compared with its competitor. It also allowed Dell to offer its products at a very competitive price and introduce the new technology more quickly than its competitors.

SWOT analysis
Strengths
* Since the company followed its built-to-order model it did not spend a lot of capital in the business.
* Low inventory which allowed the company to have very competitive prices and the introduction of newer technology at 1/3 the time taken by its counterparts.
* Since Dell inventory it’s so low, it dramatically reduces the cost of storing inventory, ...view middle of the document...

Operating assets 1995= $ 1,110 Million
Operating Assets/sales= 1110/3475= 32%
With the increased on sales form $3,475(1995) to $5,296(1996), we need to find out what is the appropriate increase in assets that can support the increase on sales.
Since the increase on sales from1995 to 1996 was $1,821 Million and the operating assets are a proportion of sales (0.32) therefore 0.32(1,821) = $582 Million, would be the total operating assets that Dell needs to fund the 52% sustained growth in sales.

Since assets have to increase same has to happen with Liabilities
Total Liabilities 1995= $942
Liabilities/sales= 942/3475= 27.1%

Continuing the calculations I did with assets, the liabilities needed to increase proportional to the increment in assets.
0.271(1821)= $494 Million.
Therefore an increase in assets of $582 Million means an increase in Liabilities of $494 Million

*

  | 1996 | 1995 | 1994 |
| | | |
Ratios |   |   |   |
Current Ratio | 2.08 | 1.95 | 1.95 |
Quick Ratio | 1.46 | 1.42 | 1.39 |
Working Capital | 1,018 | 718 | 510 |
Turnover measures |   |   |   |
Receivables turnover | 7.29 | 6.46 | 6.99 |
Days Sales in receivables (360/RT) | 49 | 56 | 52 |
Inventory turnover | 10 | 9 | 11 |
Days' sales in inventory (365/IT) | 37 | 39 | 33 |
Margins |   |   |   |
Gross margin | 20.15% | 21.24% | 15.07% |
Operational Margin | 7.12% | 7.17% | -1.36% |
Margin Net | 5.14% | 4.29% | -1.25% |
ROA | 12.66% | 9.35% | -3.16% |
ROE | 27.95% | 22.85% | -7.64% |
NOPAT | 267.67 | 149.1 | N/A |
Cash Conversion Cycle | 41.25 | 38.5 | 47.5 |
 Net Investment in Operating Capital |  211 |  56 |  N/A |
 FCF |  57.10 |  93.10 |  N/A |
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