Case Study: Dell Computer’s Working Capital Essay

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DELL WORKING CAPITAL
1. From Tab #1, what is the meaning of the Unneeded Investment? Why is having fewer “days” of inventory an advantage over Compaq?
Answer: The Unneeded Investment is done by Compaq in contrast to Dell. Dell could minimize its inventory days in 1995 to 44% of the inventory days of Compaq in the same year! It means for Dell that its liquidity does not have to be invested (to be held) in the inventory, but can be used to achieve faster growth or to do the prices of its products even more attractive.

2. From Tab #2, why does having lower inventory translate into a potential margin advantage for Dell?
Answer: Both Companies are acting on a high-tech market. The development and progress in this market is really fast.
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4. In Tab #4, why are financing requirements less than the total growth in assets? (The same issue arises in Tab #3)?
Answer: Not just the Total Asset Increase has to be financed. There is a possibility to invest/use the achieved profit to increase a total asset of the company.

5. In Tab #5, we can see that management can reduce the amount of new investment needed by
a. Decreasing Accounts Receivable, (18)
Obstacle is the relationship to the customers or potential customers. There more levels that are important to obtain, if company would like to change the condition of credit lines or discounts for the customer: - economic difficulties may prevent the borrower from repaying the account or having a reduction in credit. Companies often rely upon their accounts payable. - Attempts to reduce the balance could severely weaken an existing business relationship with the customer. - Improvements in record-keeping and customer-communications systems may decrease the own accounts receivable, but it may also cost more overhead than it at the end brings.
b. Decreasing Inventory, (22)
There more management methods of inventory of how to optimize inventory. Dell uses already the Just-In-Time inventory. If the optimization of the JIT processes should be done then “the whole supply chain” has to be observed. The dependency form supply get higher and the shortages problems can happen. As the result would be a disappointed

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