Dell Case Study

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Although Dell (“Dell” or the “Company”) is one of the medium size players, the Company is one of the most profitable and fastest growing Companies in the industry. The industry is characterized by several different products such as computers, imaging, printing systems, information technology and services and solutions. The industry has seen double digit growth for the last 10 years but as 2001 came to an end, the industry is softening.
Amongst its competitors, Dell has been very profitable with its 2001 ROE of 38.72% and growth in earnings of 31% compared to the next fasting growth Competitor, IBM with earnings growth of 5.0%. The rising ROE was driven by increased profitability, higher asset turnover and increased
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The leverage ratio indicates that the Company has increased its leverage considerably as they have turned to financial engineering to help drive ROE. The cash conversion ratio has changed from a negative cycle to a positive one as AR and inventory days have increased while AP days has declined.
ROA and ROE decreased by nearly ~10.0% due to decreased profitability and lack of efficient use of the Company assts. The Asset Turnover ratio has declined from 2.20 to 1.2 in 2013. As a way to offset poor asset use and declining profitability, the Company has increased debt and its leverage profile in order to keep ROE high.
Dell’s stock price has declined from $ 37.25 in 2000 to $ 12.98 in 2013. Despite EPS increasing in the same period ($ 0.73 to $ 1.36), the PE Ratio decreased drastically from 51.03 to 9.54 multiples, resulting in a decrease of Dells’ Market Capitalization (also impacted by the reduction on the number of outstanding shares). The stock, according to 2013 10K report page 25, has been performing below S&P-500 an S&P Information Technology indexes, indicating that external pressures on the stock.
Dell started out having a first mover advantage that allowed them to generate high returns and large growth in itd sales due to a unit direct sales model. As the industry matured, other competitors entered the market and markets pulled back Dells performance suffered. Today, Dell is the IBM of 2000 as it’s a mature business with GDP type growth in a

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