Dell Working Capital Case

List four different cost objects for Dell. For each cost object, mention one example of a direct and indirect cost.

Historically, Dell has been known as an industry leader in supply chain management. They have been credited with developing supply chain processes that have come to be recognized as some of the most innovative not only in their industry but throughout all business sectors. All of these accolades made Dell an unlikely choice since there didn’t appear to be much room for improvement, at least from a supply chain standpoint. However, over the past few

Secondly, if there would not be any need for cash and we would like to higher our stake on the company, thus getting more shares. Moreover, if the cash at that moment would not be crucial to our liquidity, getting more shares and betting on market value gains makes sense.

Inventory turnover – increase of 634.9% at Dell against 202% at Compaq shows the competitive advantage if Dell in managing and maintaining its stocks

When contemplating expansion and growth, it is imperative to understand the advantages and disadvantages as they relate to funding. Internal financing, or using profits for new investments, is advantageous as it is available immediately, there is no associated interest, there aren’t any restrictions imposed by outside parties, and overall, grants flexibility. However, it can be disadvantageous, as it is not tax-deductible, capital is not increased, and there is more available capital available on the outside market.

The actual requirement for Dell to sustain its growth target is $90+$108 = $198Mn. The remaining cash is incremental additional cash which is earned through operations, which can be invested as an asset (liquid investments). 4. How would your answers to Question 3 change if Dell also repurchased $500 Mn of common stock in 1997 and repaid its long term debt? The total amount of repurchase $500Mn and long term debt $113Mn is equal to $663Mn, which affects the net cash flow from financing activities. Total funding requirement is $663Mn + $90Mn (PPE) + $108Mn (WC) = $861Mn. Earnings from 1997, is $401Mn. We require an additional $460Mn ($861-$401) to fund

5. If you disagree with Michael Dell’s growth target from Question #3 above, what would your alternative recommendation be? Why?

In the past, Dell's supply chain was focused on being able to provide customers with a made to order computer. Dell are finding that although this strategy is profitable for customers that customise their configurations to the higher end of the configuration price bracket, when they are selling the base model, the cost of their complex supply chain is not efficient, as most of the complexities are not needed. Dell have recognised that not all segments of the market want a customisable computer, and are happy to purchase a limited configuration with slower delivery time. This will be especially true in emerging markets, where Dell believes customers will be looking to buy cheaper personal computers with fixed configurations. One of the major changes to their sales approach will see them entering the retail market, which they have already started to do. However, Michael Cannon did confirm that the direct model will remain important to Dell (SCN, 2008).

Dell has managed to become remarkably successful in a short span of time by following a direct "business to customer" model. By selling computers directly to customers, they have been able to best understand their needs and provide effective solutions to meet those needs. Dell built PCs to order, so customers received only what they wanted. Dell 's just-in-time inventory system allowed them to order only parts that customers demanded, thus keeping the minimal inventories and enjoying the cost-reductions which in turn were passed to customers. Dell 's extensive use of e-commerce contributed to further cost minimization, reduced the order and delivery time for customers, and customization. There are three golden rules

Dell is a leading technology company that offers a wide range of products including desktop computers, networking products, servers, mobility products, storage, peripherals, software as well as general IT services. The company mainly operates in the United States and is headquartered in the city of Round Rock, Texas. In the financial year ended 2011, the company recorded a revenue of $61,494 million, a figure which indicated a 16.2 percent increase over the FY2010 figure. Its FY2011 operating profit was about $3,433 million, an amount which marked a 58.1% increase over the FY2010 value. Its FY2011 net profit was $2,635 million, a value which represented a 83.9 percent increase over the FY2010 value (Datamonitor,2011).

Additionally, if the company is successful, the owners will benefit a larger portion of the rewards than they would if they had sold stock in the company to investors. The risk of raising cash through debts is it makes the company a weak position where it usually must pledge its assets to the lender as collateral and the owner can even have to guarantee repayment of the loan.

For expansion via capital projects we must look at accounting costs, marketing research, and how to raise financial capital. The best way to get the cash flow for financing this capital project is to use any profit that we made prior and reinvest into the company through this capital project. If there was no profit or the profit wasn’t large enough to fund the project, we must look at alternative ways to fund the project. This could be through a capital investment firm or a financing corporation that we would either have to give up equity of the company to or pay interest on the money borrowed. After determining how the project is going to be funded, then we need to analyze what kind of return can we estimate getting from this particular capital project. For this issue we can perform an internal rate of return or a net present value on the earnings that we think we can get from this project. This will provide us with the information needed to determine if the project should be done or if we should look to

This act of issuing stocks is to obtain capital growth and by raising capital through the use of equity there are many advantages to the firm as well as several disadvantages. The value of stock is what the stock is worth and the stock market is a place where you can buy and sell shares of a company. If a firm needs extra money in order for their business to grow, it is possible for them to sell a share or the entire ownership of the firm in the form of stocks. Firms can benefit greatly from this act but some firms do not and their business ends up failing. Before a company considers issuing new stock it is crucial that the company has a solid management team, and capitalization displaying no more than twenty five percent debt and growth of at least ten percent annually. The best time to raise capital through the use of equity for your company is when the industry is growing rapidly and the company requires access to more capital and public recognition to fund its plans for growth, development and expansion.

Dell’s 2013 interest coverage ratio has decreased from about 44 in 2011 to 17.6. This trend is a bit of a concern as the risk of bankruptcy increases with more debt. Dell has about $21.8 billion in liability obligations and $10.9 billion in excess cash ((Yahoo Finance). At a $13.75 per share, an equity amount of $3 billion is needed to complete the deal. It is recommended that Michael Dell stays on as the Chief Executive Officer (CEO) after the LBO deal.

In 1984 when Dell Computer Corporation was first founded, the company was in business to “design, manufacture, sell and service High performance personal computers compatible with industry standards”(Ruback, 2003, p. 1). At the beginning the company would take older computers from IBM and they would upgrade these computers