PRESENTATION ON THE FINANCIAL

PERFORMANCE OF DELL
CORPORATION FROM 1992-1996

4/3/2010
PRESENTED BY :

ODORGONNO GROUP
Mathew Adjei Darko PG3056209
Samuel Ameyaw PG3033809
Reginald Acheampong PG3021009
John Fredua Mensah PG3061909
Rosemary Acquaah Kyere PG3069309
Divine Doko PG3058009
Stephen I.K. Paku PG3087309
Dickson Amankwah Kuffuor PG3067809
Vivian Akofa S. Mottey PG3074209
Winfried Dokodi PG3058109
Patrick Acquah PG3021809 1
CONTENT

•Introduction

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•Trend analysis

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•Common size analysis

•Financial performance ratios

•Graphs

•Interpretation of analysis

•Conclusion and Recommendation

2
Introduction

Dell Corporation was founded in 1984 by Michael Dell.

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Initially, the corporation purchased IBM compatible personal
computers, upgraded them, and sold their upgraded PCs
directly to businesses by mail order. Subsequently, Dell began

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to market and sold its own brand personal computer, taking
orders over a toll free telephone line and shipping directly to
customers.

Selling directly to customers was Dell’s core strategy. The

build to order model enabled Dell to deliver customized order
within a few days, something its competitors could not do. Dell
was also the first in the industry to provide toll free telephone
and onsite technical support in an effort to differentiate itself
in customer service.

Dells build to order manufacturing process yielded low 3

finished goods inventory balances. By the mid 1990s Dell’s
work in process (WIP) and finished goods inventory as a
STRATEGY EMPLOYED BY DELL

•Taking orders over toll free telephone line

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•Shipping directly to the customers

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•On site technical support

•Build to order enabled Dell to deliver customized order

within few days.

•Differentiation in customer service from its competitors.

•Expanding the indirect distribution channels by adding the

mass market retailers

•Intensified marketing strategies for special products

4
• Aggressive pursuit of foreign markets
4/3/2010 ODORGONNO GROUP
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 Trend Analysis (Fig. 1 continued..)
Balance Sheet for Dell Computer Corp. (million U$D)
Change in U$D % Change
Year Ended 1995 - 1994 - 1995 - 1994 -
1996 1995 1996 1995
Current Assests:

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Cash 12.00 40.00 27.91% 1333.33%
Short Term Investment 107.00 150.00 22.11% 44.91%
Account Receivable, net 188.00 127.00 34.94% 30.90%
Inventories 136.00 73.00 46.42% 33.18%

ODORGONNO GROUP
Other 44.00 32.00 39.29% 40.00%
Total Current Assets 487.00 422.00 33.13% 40.27%
Property, Plant and Equipment, net 62.00 30.00 52.99% 34.48%
Other 5.00 2.00 71.43% 40.00%
Total Assets 34.76% 39.82%
554.00 454.00
Current liabilities
Accounts payable 63.00 403.00 15.63% #DIV/0!
Accrued and Other Liabilities 124.00 349.00 35.53% #DIV/0!
Total Current Liabilities 187.00 214.00 24.87% 39.78%
Long Term Debt - 13.00 0.00% 13.00%
Other Liabilities 46.00 46.00 59.74% 148.39%
Total Liabilities 24.73% 40.81%
233.00 273.00
Stockholders' Equity
Preferred Stock (Note a) (114.00) 120.00 -95.00% #DIV/0! 6

Common Stock (Note a) 188.00 242.00 77.69% #DIV/0!

Retained Earnings 259.00 311.00 83.28% #DIV/0!
TREND ANALYSIS
Sales have been increasing significantly from 1992-1996
(thus from 1124-1821) million dollars representing 126.29%
and further increased but at a decreasing rate from 126.29%-

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42.65%-20.95%-52.4%.

Cost of sales increased significantly in 1992-1996 (157.40%-

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54.5%), most especially in 1992-1993.

From 1992-1995 operating expenses have been increasing at

a decreasing rate from 44.19%-41.10% and in terms of
absolute figures from 95, 162, 17 and 201 million dollars
respectively for the period.

Operating expense has also not been fair to Dell cost of

achieving its targeted profit margin

Low net profit from 1994 as a result of a shift in the

7
corporation’s focus

Total asset has been increasing from 1994-1996 by 454 and

From exhibit 2 in the case study it can be noted that the
cash conversion cycle (CCC) has been shortened from 48
days in 1993 to 40 days in 1996.

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There was significant increase in the equity from 1994-
1995 and from 1995-1996 with 38.43% and 49.23%

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respectively.

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TREND ANALYSIS OF PROFIT AND LOSS STATEMENT

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4/3/2010 ODORGONNO GROUP
10
Dell's Annual Sales in Relation to Industry -

Dell Industry

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% %

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1991 63 -2

1992 126 7

1993 43 15

1994 21 37

1995 52 31

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 Common Size Analysis - (Fig. 2)

Profit and Loss Statement

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Fiscal Year 1996 1995 1994 1993 1992

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Sales 100 100 100 100 100

Cost of Sales 79.85 78.76 84.93 77.71 68.31

Gross Margin 20.15 21.24 15.07 22.29 31.69

Operating expenses 13.03 14.07 16.43 15.39 24.16

Operating Income 7.12 7.17 (1.36) 6.90 7.53

Financing and Other Income 0.11 (1.04) - 0.20 0.79

Income Taxes 2.10 1.84 (0.10) 2.04 0.22

Net Profit 5.14 4.29 (1.25) 5.06 12

8.09
 Common Size Analysis - (Fig. 2 continued..)
Balance Sheet
Year Ended 1996 1995 1994
%
Current Assests:
Cash 2.56 2.70 0.26

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Short Term Investment 27.51 30.36 29.30
Account Receivable, net 33.80 33.75 36.05
Inventories 19.97 18.38 19.30
Other 7.26 7.03 7.02

ODORGONNO GROUP
Total Current Assets 91.11 92.22 91.93
Property, Plant and Equipment, net 8.33 7.34 7.63
Other 0.56 0.44 0.44
Total Assets 100.00 100.00 100.00
Current liabilities
Accounts payable 21.69 25.28 -
Accrued and Other Liabilities 22.02 21.89 -
Total Current Liabilities 43.72 47.18 47.19
Long Term Debt 5.26 7.09 8.77
Other Liabilities 5.73 4.83 2.72
Total Liabilities 54.70 59.10 58.68
Stockholders' Equity
Preferred Stock (Note a) 0.28 7.53 -
Common Stock (Note a) 20.02 15.18 -
Retained Earnings 26.54 19.51 -
Other (1.54) (1.32) - 13
Total Shareholders' Fund 45.30 40.90 41.32
Total Shareholders' Fund & 100.00 100.00 100.00
Liabilities
COMMON SIZE ANALYSIS

The common size approach in figure 2 shows that cost of

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sales has been increasing from 1992-1996.

Cost of sales forms the majority of the sales figure or the

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percentage of sales. On the average, cost of sales
constitutes 77.91% of sales leaving 22% as gross profit
which is subject to deductions (operational charges).

 With the level gross profit it makes it difficult for

substantial profit to be obtained.

From 1992 current asset has increased as in the fig 2.

Showing that current asset constitutes 91% on the
average of the total asset.

Total liabilities constitute 58.68% of the total 14

shareholders fund and liabilities. Out of the total liabilities
46.03% constitute the current liabilities.
KEY FINANCIAL Formula 1996 1995 1994 1993 1992
PERFORMANCE RATIOS
- (Fig. 3)

Profittability &
Sustainability Ratios

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Gross Margin Ratio Gross Margin 20.15 21.24 15.07 22.29 31.69
% % % % %
Sales

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Return on Assets Net Profit 14.54 10.90 -3.16%
% %
Average Assets

Return on Equity Net Profit 33.48 26.54 -7.64%

% %
Average Equity

Operational Self-Sufficiency Operating Revenue 823.04 754.19 600.42 695.81 448.37

% % % % %
(Financial Expenses+ Operating
Expenses)
Return on Common Net Profit 80.95 123.14 #DIV/
Stockholders' Equity % % 0!

15
Average Common Stock
KEY FINANCIAL Formula 1996 1995 1994 1993 1992
PERFORMANCE RATIOS
- (Fig. 3 continued...)

Liquidity Ratios

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Current Ratio Current Assets
1.67 1.56 1.57
Current Liabilities

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Quick Ratio (Acid Test) (Current Assets - Inventories)
1.30 1.25 1.24
Current Liabilities

Inventory Turnover Ratio Cost of Sales 11.71 10.67 11.09

Average Inventories

Account Receivable Net Credit Sales 8.38 7.32 6.99

Turnover Ratio
Average Receivables

Assets Turnover Ratio Sales 2.83 2.54 2.52

Average Assets 16
KEY FINANCIAL Formula 1996 1995 1994 1993 1992
PERFORMANCE RATIOS

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Financial Leverage
Ratios

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Debt/Equity Ratio (Loans + Preference Stock) 0.12 0.44 #DIV/
0!

(Common Stock + Reserves)

% of Capital Employed (Loans + Preference Stock) 0.12 0.36 0.21

represented by
Borrowings
(Common Stock + Preference
Stock + Reserves)

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FINANCIAL PERFORMANCE RATIOS

 In general the gross margin ratio for Dell has been

decreasing (31.69%-21.24%). However, there was an

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increase in 1995, as a result Dell putting18 in measures to
improve its internal system for forecasting, reporting and
inventory control.

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From 1994-1996 return on equity or revenue generated
from invested equity increased from negative 7.64% to
33.48% indicating that Dell corporation is able to turn its
investment to make profit or revenue out of its invested
equity. But in 1994 the negative recorded was as a result of
high operating expenses and high cost of sales.

It can be noted in figure 3 that Dell’s current asset was

able to cover its current liabilities on average by 1.6 times
thus almost 2 times, but using the quick ratio it indicates
that Dell’s current asset is able to meet its current financial18
obligation by 1.26 times. This shows that inventory forms an
integral part its current asset and accounts for 0.33%.
From figure 3, it can be realized that averagely Dell was
able to achieve inventory turnover of 3.4% which shows
that Dell does not hold on to excess inventory which

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translates into their strategy of build to order.

Dell’s corporation receivable inventory turnover has been

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increased from 6.99-8.38 times as in figure 3 through the
introduction of cash conversion cycle.

It could be noted that Dell’s equity can cover debt or

borrowings by 44%. However, it decreased in 1996 to 12%.
It means Dell’s equity can cover their debt and does not
rely on debt on loans to finance its operations hence an
indication that Dell is not highly geared.

From the analysis it could be said that from 1994-1996,

Dell’s equity ratio has sharply decreased from 44% -12%,
indicating that more of its capital is generated from equity. 19
As a result, high taxes are paid. Tax obligations increased
from $64 in 1995 to $111 million dollars in 1996, since Dell
Conclusion/Recommendation

From the analysis, Dell Corporation is viable and sustainable

as shown in the various key indicators outlined above such as

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•Return on invested capital

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•Return on asset and others

These were found to be very attractive to lure potential investors

into the corporation.

However, some major threats to the long term survival of Dell are
the high cost of sales and operating expenses which have to be
brought under control to ensure maximum profitability.

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 4/3/2010
ODORGONNO
GROUP

ODORGONNO GROUP
SAYS…………….

THANK 21