Financial Ratios for Dell Inc.

Financial Ratios for Dell Inc.

Team D selected Dell Inc. as our company for the team project. Why was Dell chosen? Dell Inc. with annual revenue of $41.4 billion, is a premier provider of computing products and services. Because of its direct business model, Dell was the leading seller of computer systems worldwide and the number one seller in our customer segments in the United States during calendar year 2003.

Michael Dell founded the company in 1984 on a simple concept of selling computer systems directly to customers. Using this technique, Dell could best understand customer needs and efficiently provide the most effective computing solutions to meet those needs. Dell’s climb to market leadership is the result of a relentless focus on delivering the best customer experience by selling computer system and services directly to customers.

Dell, a Delaware corporation, is based in Round Rock, Texas and conducts operations worldwide through wholly owned subsidiaries. The company’s business strategy combines its direct customer model with a highly efficient manufacturing and supply chain management organization and an emphasis on standards-based technologies. This strategy enables Dell to provide customers with superior value high quality, relevant technology customized systems; superior service and support; and product and services that are easy to buy and sell. (Form 10K, 2004)

A company with an annual revenue of $41.4 billion must be financially sound, right? The answer is…“not necessarily!” However, there are tools available that will help determine if our selected company is financially sound. Ratio analyses are those tools used to evaluate the performance of a business and identify potential problems.

Financial Ratios

Financial ratio analysis can teach so much about Dell’s accounts and business. For example, using ratio analysis, we can conclude the profitability of Dell. We can also determine if Dell has enough money to pay its bills. Ratio analysis can check whether Dell is performing better this year than it was last year. Additionally, ratio analysis can alert us if Dell is doing better or worse than other businesses selling the same or similar products. http://www.bized.ac.uk/compfact/ratios/intro1.htm

Table 1.1 lists the ratios we feel are important for our selected company.

Dell Incorporated

Profitability Ratios 01/30/2004 ...

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...05 from http://www.133.americanexpress.com/osbn/tool/ratios/htm

Financial Ratios-Formulas and Examples. (2004). Retrieved on March 3, 2005 http://beginersinvest.about.com/od/financial ratio/

Form 10-K, (2004). Dell Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Retrieved on March 5, 2005 from

Mergent database.

Net Profit Margin Ratio. (2005). Retrieved on March 4, 2005

http://beginersinvest.about.com/od/financial ratio/

Quick Ratio. (2005). Retrieved on March 5, 2005 from

http://www.bankrate.com/brm/news/biz/bizcalcs/ratioquick.asp

University of Phoenix (ED.) (2001). Fundamentals of Corporate Finance. {University of Phoenix Custom Edition e-text}. New York: McGraw-Hill Custom Publishing. Retrieved on March 6, 2005 from the University of Phoenix, resource, FIN/544-Finance for Managerial Decision Making website: https://mycampus.phoenix.edu/secure/resource/resource.asp.

Welcome to Ratio Analysis! (2004). Retrieved on March 3, 2005 from http://www.bized.ac.uk/compfact/ratios/intro1.htm

Working Capital Ratio. (2005). Retrieved on March 5, 2005 from

http://www.investopedia.com/university/ratios/workingcapital.asp.