Dell’s Working Capital

2550 WordsNov 28, 200811 Pages
Dell’s Working Capital by Ali I Executive Summary I. In order to sustain and improve Dell’s performance and increased growth which will eventually lead to increase the market share, and to take advantage of the booming computer industry, Dell needs to come up with a plan to finance the future growth. II. Dell Computer Corporation, founded in 1984, designed, manufactured, sold, and serviced high performance personal computers (PC’s). Its core strategy, and advantage over competitors, was selling directly to customers. In 1996, Dell reported an impressive growth in sales of 52%. III. We forecasted, using the percent of sales method, for the next three years financial statements and we have done two analyses. First by…show more content…
For the year 1996 we find: • Short Term Investments: $591 million • Inventory: $429 million • Current Ratio: 2.08 • DSI: 29.57 days • DSO: 50.04 days • Debt Ratio: 54.70% Then, we use the percent of sales method to forecast Dell’s future financial status. Here we used two pathways, a conservative one, taking 20% increase in sales which is the same figure used for the industry, and an optimistic one, pushing with 50% increase in sales. When calculating our forecast the conservative way we find out the short term investment account will be good enough to finance the anticipated growth. The main outcomes for 1997 (for 20% increase in sales) are: • Sales: $6,355 million • Net Income: $322 million • The Additional Fund Needed was negative ($278 million); hence we added it to the short term investment account. • Short Term Investment: $869 million • Current Ratio: 2.23 • Debt Ratio: 50.68% On the other hand, when calculating our forecast at 50% increase in sales we found that Dell will have more than enough not only to finance the anticipated growth but also it can pay off its long term debt or invest in short term or long term assets. The main outcomes for 1997 (for 50% increase in sales) are: • Sales: $7,944 million • Net Income: $402 million • The Additional Fund Needed was negative ($587 million); hence we added it to the short term investment account. • Short Term Investment: $1,178 million • Current Ratio: 2.00 • DSI: 23.65 days • DSO:

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