Essay about Dell's Working Capital Case Solution

The inventory balance on Dell's balance sheet is small ($459) compared to the other because they have been recently engaged in a number of business ventures with the aim of bringing in more profits and placing themselves as a global leader in their business sector. The low inventory levels keep them ahead of the other competitors in the market (Kramer, 2002).

* Assuming Dell’s sales will grow at 50% in 1997, how would you recommend that the Company funds this growth? How much capital would need to be reduced and/or profit margin increased if the company were to fund its growth by relying only on internal sources of capital? What steps would you recommend the company take?

Dell. Dell’s products—computers, servers and printers—are commodities. Dell tends not to develop the technologies underlying these products. Instead, it purchases the components from firms that develop the technologies (semiconductors and computer software). Dell’s direct-to-customer marketing strategy is not unique, but the extent to which Dell performs this strategy better than anyone else in the industry gives it a competitive advantage. Its size, purchasing power, quality control, and efficiency permit it to operate as a low-cost provider.

The advantages of Dells model are: The internet allows Dell an extensive scope and reach for its products at a relatively low price (Dedrick and Kraemer 2001). Using the internet Dell has been able to automate many of its business functions, such as product configuration, order entry and technical support (Dedrick & Kraemer 2001), therefore the company can achieve higher revenues without customer service costs increasing greatly. Online configuration ensures that the customer gets exactly what they want. Dells build to order strategy means that inventory levels are low, they only hold approximately 4-8 days of stock, therefore inventory costs are low (Breen 2004).

They know that growth is lacking and that in order to survive, DMC must alter course now. Senior leadership needs to determine which market segment to pursue, and how this strategy may or may not affect other areas of the company including, but not limited to: Human Resources, Manufacturing and Distribution. Senior leadership must also be aware that any change in strategy will influence I.T. also. While IT is a broad-minded team willing to offer up technical solutions to advance product development and sales, their budget, as well as other departments has been inhibited over the course of current recession and the inconsistency of returns to the company.

Capital structure decision will be affected when each division raises its own debt. Since the divisions are free of the parent company’s structure- permitting each division to set up their target debt ratio close to the industry average. This leads to each division setting a high debt ratio to achieve a lower hurdle rate.

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

Working Capital is again in the red zone, dropping more than 75% from FY09 to FY10. However, the historic trend for the company is not very impressive, with working capital dropping as low as -$3 billion. The Operating Cash Flow Ratio is somewhat more reassuring, standing at 18.13 in FY10 from 14.67 a year earlier. This implies that for every dollar of current liability, the operations are providing $18 of revenue to cover the expense. However, operations are not primarily meant to cover just short term obligations, but also long term costs. Thus it cannot be justified that operations are very adequate to meet ST obligations.

Dell is a computer corporation recognized for manufacturing computer systems through parts assemble. In 1983, Michael Dell saw an opportunity in using IBM compatible computers for a new assembly line that can be sold to local businesses. The idea as explained by Michael Dell, in one of his interview, is that in the early days of computers' manufacturing, companies had to be able to produce every part of the system. As the industry matured, companies started to focus on single parts and to become specialized in creating items that can be assembled with other parts to prepare a computer. As a result, Dell understood that to have a competitive edge in the market, they needed to

The Corporate Finance course has helped me, as a student, gain intelligence to make informed decisions upon analyzing the details for Sunflower Nutraceuticals (SNC). These decisions will influence the company’s overall growth annually. In addition to various details of the SNC Company I have also made various decisions in each of the phases of SNC’s simulation which has an estimated values to figure out the results. This paper also explains how SNC’s decisions are influenced with regards to the working capital followed with the final step of evaluating the general affects associated with the limited

Dell Company has a successful business strategy. As it is following cost leadership strategy. Its success story is hidden in cost proposition, delivery, and unique customization. In response to the high performance and better chances for growth Dell is applying two way strategy parallel to one another.

Analysing the historical values of the operating margins from the Income Statement, we forecast values for the 2007-2009 period. The executives of BKI expect the firm to achieve operating margins at least as high as the historical ones. Thus, we took averages and slightly adjusted them toward higher values. Since the declining tendency in the last three years was cause by integration costs and inventory write-downs associated with acquisitions, which already have been completed. To the EBIT, estimated by using those margins, subtract the taxes, Capex, adjust for Depreciation, Amortization and change in Working capital. The capital expenditures were just over $10m on average per year. The company is expecting the Capex remain modest. Thus, we assumed a Capex of $10m for the next three years. We estimated Net Working Capital by using the average ratio of NWC/Net income of the last three years.

REF OF GROUP MEMBERS’: TABLE 1 : 5 C’s SITUATION ANALYSIS Factors Dell Company: Resources 1.4 Licensing, Distribution channel, Supply • Intellectual property, Human resources, Patent, Competences Brand acuity1 chain management 24 25 Techno structure • Just-in-Time; CRM; Engineer R&D, Acquisition

The most important questions facing Dell was – how to grow and at what cost. The purpose of this research is to analyze Dell’s core strategy, its working capital management, and come up with a plan to finance its future growth by evaluating its financial statements.

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.