Dell’s Working Capital
Case Background
Dell Computer Corporation was founded in 1984 by then 19 years old Michael Dell. The company designed, manufactured, sold and serviced high performance personal computers (PCs) compatible with industry standards. At the first time, Dell the company purchased IBM compatible personal computers, upgrades them, and then sold the upgraded PCs directly to businesses by mail order. And then Dell began to market and sells its own brand personal computer, taking orders over a toll free telephone line, and shipping directly to customers.
Dell Computer Corporation had reported the impressive growth for fiscal year 1996 with sales up 52% over the prior year. Contrary from the industry, Dell’s build-to-order manufacturing
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Operating Assets
The growth of sales in 1995 to 1996 is 52%. The total asset in 1995 amounted $ 1.594 million with the short term investment $ 484 million and the total asset in 1996 amounted $ 2.148 million with the short term investment $ 591. The total assets in 1995 have 46% of sales. Operating assets in 1995 and 1996 will be explained in calculation below:
Operating assets decrease to 2.54%. Decrease in Operating Asset concludes that company saved $ 134, 5 million in 1996. The sales in proportion to percentage between total sales in 1995 to 1996 times with the percentage of operating assets in 1995 were amounted $ 582 million. Since $ 582 is the total amount required, company had saved up to $ 134, 5 million. Total amount have required sums up to $ 582 - $ 134, 5 = $ 447, 5 million as the required amount to sustain its growth.
Current liabilities that have been increase from 1995 – 1996 amounted up to $ 187 million and according to the data, the net profit in 1996 was $ 272 million. However, based on the calculation, net profit and total liabilities are larger than the required amount of operating assets as $ 459 million ($272 + $187), because the net profit is higher than the required amount to sustain the growth for Dell, so in 1996 Dell was able to use internal resources to sustain its
In analyzing the common-size balance sheet for Applebee’s, it is noted that the total current assets has jumped from 11% to 14% of the total assets. The total assets for Applebee’s has jumped 6% from 2000 to 2001 driven by increased in the total current assets of 28%. Of those 28% increase, they consisted of 88% increase in the Cash & Equivalents (increased of $10.6 millions) caused by the decreased in the Capital Stock repurchasing in 2001 by Applebee’s. The repurchase of capital stock has decreased by 31% as noted from the year-to-year percentage changes of the Statement of Cash Flow which equivalent to about $11 million dollars. The other current assets increased was from the other Current Assets category; there was an increase of 92% from 2000 to 2001. Due to the higher earnings for Applebee’s, there was an increase in income tax due. A significant component of the increase of other Current Assets was from increased in prepaid income taxes with net deferred income tax asset of $6.7 millions dollars.
Opossumtown, Inc. has been selling different types of equipment to contractors in the construction industry since 2007. It is a publicly traded company and therefore answers to its shareholders. As with all publicly held corporations, the company needs to show consistent growth in revenue from year to year. Therefore, in 2014 in an effort to increase revenue, Opossumtown, Inc. implemented a plan to increase marketing and selling expenses while decreasing selling prices. By implementing these changes, the company is looking to achieve its goal of increasing operating income by 6% and net income by 4%.
1. How and why did the personal computer industry come to have such low average profitability?
During the year, budget performance was monitored closely. Each week’s and monthly, sales revenue performance figures were sent to Herb Stolzer by Roy Black. Roy Black also sent a monthly management report to Stolzer that included income statement highlights and a summary of key balance sheet figures and ratios. All information was provided with reference to (1) position last month (2) position this month (3) budgeted position.
This company has a large amount of assets, they total out at about 124,213. They have more assets than actually cash on hand. This company has no short-term debt, the only debt they have is short-term. There is a section called other assets this, has increased by a lot. The fixed assets have increased by a lot in this company.
Michael Dell founded Dell Computer in 1984 and grew it into one of the largest computer manufacturers in the world. Dell Computer’s success resulted in Michael Dell being the highlighted as “youngest CEO of a Fortune 500 company” (Krames, 2003, p.58). Michael Dell’s guiding principle is to focus on the customer. This principle routinely guided his leadership decisions including computer design and development decisions, the organizational structure of the company and in how Dell Computer used the Internet.
Total Asset Turnover – Dropped from .64 in 2001 to .58 in 2002 to .55 in 2003. The reason is big increase in Total Assets.
While analyzing the data for The Body Shop International case, I noticed some trends and have compiled my assumptions for the next three years. I have compiled pro-forma statements for the fiscal years 2002, 2003 & 2004. These figures are based on the percentage of sales method for pro-forma financial modeling. Simply put, I used the sales figures from the past three years 1999, 2000 & 2001 and applied a growth rate of 13% increase to sales. Below are some additional assumptions that I have created to illustrate how the firm can become profitable while increasing market share and maintaining stockholder interest within the firm over the next three years.
Ford’s impressive total asset size is $225 billion (Ford, 2015a). The fixed assets turnover ratio (FATR) illustrates the effectiveness of using fixed assets to generate sales. Ford’s average fixed asset turnover ratio for 2013-2015 is (0.33 for 2015 + 0.32 for 2014 + 0.28) / 3 = 0.31 (Ford, 2015a; Ford, 2015c). Although the number is small, one can compare Ford’s FATR with a competitor during the same period to determine which one uses their fixed assets better. GM’s average FATR for the same period was (0.28 for 2015 + 0.18 for 2014 + 0.14 for 2013) / 3 = 0.2 (GM, 2015a, GM, 2015c). Therefore, one can conclude that Ford’s usage of fixed assets was more productive than GM’s. I will give GM some credit, because of their increasing
Why has Dell been so successful despite the low average profitability in the PC industry?
...To check how successful it has been, we calculate debtor collection period ratio. (Dyson, 2004) Fixed Asset turnover: In this ratio, we seek the amount of sales that can be generated (or the amount of fixed assets necessary to achieve a level of sales) from a given level of fixed assets. (Klein, 1998) Total asset turnover: This ratio determines that how efficiently a firm is utilizing its assets. If the asset turnover ratio is high, the firm is using its assets effectively in generating sales. If this ratio is low, the firm may not be using its assets efficiently and shall either increase sales or eliminate some of the existing assets. (Argenti, 2002) Solvency Ratio Gearing: Gearing reflects the relationship between a company’s equity capital (ordinary shares and reserves) and its other form of long-term funding (preference share, debenture, etc.) (Black, 2000)
The problem with Dell Inc. was the rapid growth within the company in their beginning stages.
Dell Inc. has realized that the most efficient path to the customer is through a direct relationship, with no intermediaries to add confusion and cost. With the power of their direct model and their team of talented people, they are able to provide to their customers high-quality, relevant technology, customized systems, superior service and support, and products and services that are easy to buy and use. HISTORICAL REPORT Dell Inc, was founded as “PC’s Limited” in 1984 by Michael Dell, while still a student at the University of Texas at Austin, with just $1000. From Michael Dell's off-campus dorm room at Dobie Center, the startup aims to sell IBM-compatible computers built from stock components. Michael Dell started trading in the belief that by selling personal computer systems directly to customers, PC's Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs.
This strategy was carried out by selling via phone, fax and direct sales, instead of selling through retail stores. Not only this approach differentiated Dell from other competitors at the time, it also reduced its operating costs as it did not have to rent expensive retail space. In addition, Dell’s strategy of selling customised computers allowed it to hold only a small amount of inventory, which reduce...
Case Study of Dell Computer Corporation Introduction Michael Dell founded Dell Computer Corporation in 1984 with a simple vision and business concept – that personal computers can be built to order and sold directly to consumers. Michael believed his approach had two advantages: (i) by passing distributors and retail dealers eliminated the markups of resellers, and (ii) building to order greatly reduced the costs and risks associated with carrying large stocks of parts, components and finished goods. Its build-to-order and sell-direct approach proved appealing to growing numbers of customers in the mid 1990s as global PC sales rose to record levels. In 1998, it was already the 3rd manufacturer in the United States with a 12% share of PC market and a nearly 6% share worldwide. The company’s fastest growing market for the past several quarters was Europe.