BOND ANALYSIS



Bond Analysis



Bond Analysis

Introduction

Dell Inc. is an American based multinational company deals in information technology products with its head quarter in Round rock, Texas, U.S. it develops, computer related products and services and also provide after sales services. (www.dell.com)The company has taken its name from the name of its owner and founder, Michael Dell. With its operation around the globe the company has employed more than 100,000 worldwide. The company was ranked at the 38th place in fortune 500 companies. It also deals in cameras, mp3 players, printers, and other electronic products.

Dell Capital Structure

Dell is issuing bonds because it wants to invest in cloud computing as computer makers are now moving to cloud computing which helps customers consume data and software over the internet , Normally Dell depend on both type of fund source i.e. equity and Debt we will first discuss both type of financing.

Debt financing

The strategy of the debt financing involves the acquisition of funds from the investor or lender with the agreement and understanding that the complete amount will be re-paid in the future by the company on predefined terms. Normally, in debt financing the lender or the investor is not entitled any ownership of the company like we discussed in the equity financing (Linda ,2008).

Looking at the above picture one can see dell's debt share in its total financing which is 47.6 %, which makes dell a risky company to invest in, but in spite of this it has some advantages (Paramasivan,2009).

Advantages

No fragmentation of administrative powers and management which ensures the smooth operations of the company.

No profit sharing with the share holders enables maximization of the profit to the owners.

Because of the occurrence of the interest charges on the loan amount, the company enjoy the tax benefits and decreases the tax liability of the company

Disadvantages

The company will have to make regular interest payments to the lender irrespective of the profitless account of the company in order to maintain the credit rating.

The potential threat of losing personal assets and getting bankrupt in the case, when the liabilities are not honored due to any reason (Jordan, 2008).

Proper paper work required in order to receive loan by the lender and, it may consume long time (Linda, 2008).

Financial leverage before and after the offering

Debt Management

04/29/2011

01/28/2011

10/29/2010

LT Debt to Equity

0.81

0.66

0.76

Total Debt to Equity

0.91

0.77

0.88

Credit Rating

Moody's Rating : A2 (03/28/2011)

In my opinion looking at the current economic crises in the country ...