Financial Analysis of Dell



Financial Analysis of Dell

Introduction

Dell Inc. operates in Computer Technology Industry. It is a operating in many countries across the globe. The products offered by dell include Personal computers, servers, networking devices, storage and portable products, software and peripherals, and other related services. It is headquartered in USA. It has about 109,400 numbers of employees. It accounted for $62,071 million of sales during 2012, which was increased by 0.9% as compare to 2011. Dell Inc. made an operating profit of $4,431 million in 2012, which is increased by 29.1% from 2011. The net profit resulted into $3,492 million in 2012 i.e. 32.5% higher than that of 2011. It was founded by Michael Dell in 1984 primarily to sell personal computer systems to customers. Gradually it obtained all the success by introducing The Turbo, Dell's very first computer system in 1985 and became a public Limited company in 1988. Subsequently it invented the first Notebook Personal computer under its brand name (Marketline, 2012).

Business Strategy

The company is mainly engaged in designing, planning, developing, manufacturing, marketing, selling, and supporting field of information technology. It has divided its business into several groups such as consumers, huge organizations, common public, and small and mid sized scale companies. The main strategy of the company revolves around alteration of products and items in its portfolio that aims to yield higher returns. It believes that in order to achieve its fundamental goal, it must continuously expand and offer variety of organizational solutions and associated services. Its main domain of growth are considered as data centers, information management and cloud computation. The company perceives to expand its operations in emerging countries in order to grab the growth opportunities. It aims at acquiring companies that hold profitable portfolios that comply with worldwide customer database and distribution activities (Takahashi, D., 2012).

Ratio Analysis

The Ratio Analysis of Dell Incfor the past three years are mentioned in Table No. 1 and analysis is described below:

Ratios

2010

2011

2012

Current Ratio

1.28

1.49

1.34

Quick Ratio

1.03

1.26

1.12

Receivable Turnover

10.01

9.97

9.57

Inventory Turnover

45.51

42.60

35.68

Fixed Asset Turnover

23.75

29.75

30.45

Asset Turnover

1.76

1.70

1.49

Gross Profit Margin %

17.51

18.53

22.25

Operating Profit Margin %

4.11

5.58

7.14

Net Profit Margin %

2.71

4.29

5.63

Return on Assets %

4.76

7.29

8.40

Return on Equity %

28.91

39.31

41.86

Financial Leverage

5.97

4.97

4.99

Debt to Equity

0.61

0.66

0.72

Earnings Per share

0.73

1.35

1.88

Book Value Per Share

2.88

4.05

4.96

Table No. 1

Source: (Morningstar, 2012)

Liquidity Ratios

Liquidity ratios measure the company's capability to pay its debt commitment in time (Fraser. L. M. and Orimiston. A. 2007). We have measured two ratios of liquidity to evaluate Dell Inc. ability to fulfill its debt obligations.

Current ration is the measures the company's capacity to fulfill its short term commitments, it is computed by dividing current liabities to current assets (Fraser. L. M. and Orimiston. A. 2007). The current ratio of Dell Inc. exhibits an increasing trend for a longer time period but it has decreased from 1.49 to 1.34 in 2012. The decrease can be explained by greater increase in current liabilities from 19,483 to 22,001 in 2012, as compare to current assets i.e. from 29,021 to 29,448 during 2012. Increase in assets is mainly because of increased inventories solely. The increase in liabilities was due to increased short term debt on ...