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Information about Dell_Working_Capital

Published on August 6, 2012

Author: aSGuest141178



Dell Computer: Dell Computer Working Capital Management Financing Growth PowerPoint Presentation: What is the Dell’s completive advantage? How Dell funded 1996 sales growth? Evaluate Dell’s Internal funding options for 50% sales growth in 1997 Dells Competitive Advantage: Dells Competitive Advantage See Table A Compare with Compaq Use information from Table A and Exhibit 4 & 5 PowerPoint Presentation: Competitive Advantage on DSI Dells COGS(Compaq’s DSI-Dell’s DSI)/360 days (($2,737)(73-32))/360 = $312 million What does $312 mn mean to Dell? PowerPoint Presentation: $312 mn is equal to (1996 figures) 59% of Dells Cash &ST Investments (Returns) 48% of Equity 209% of Income Reduced Obsolesce Risk Lower Inventory Cost PowerPoint Presentation: Low inventory Reduced obsolesce risk and lowers inventory cost Level of Inventory Dell 8.9% of COS Compaq 20.3% of COS Inventory price were down by 30% due to obsolesce Dell’s inventory loss will be 2.7% while for Compaq 6.1% of COG $2.7 bn COS of Dell X (6.1 – 2.7 %) Sell of older /obsolete system at discount will eat away high margin new system sale Or require the ready computers to be reconfigured Low inventory has risk for Component shortage Funding Growth for 1996: Funding Growth for 1996 Total assets of Dell were 46% of Sales Short term investment were 14% of Sales Operating Assets were 32% of Sales 1996 sales increased by $1821 mn How much additional investment in assets would be required? PowerPoint Presentation: Operating Asset increase would be (46% -14%) * Incremental Sales 32% * 1.8 bn $582 mn Funding At 1995 Net income margin of 4.3% the 1996 net income would be $227 mn 1996 funding required would be $582-227 = 335 mn But if WC efficiency improves outside funding requirement may not be there . Sustainable Growth Rate: Sustainable Growth Rate Dell Sustainable growth rate as seen in TN is 31.6 PowerPoint Presentation: Sustainable growth rate in 1995 was 31.6%, below the actual growth rate of 52% in 1996. Firm growing beyond sustainable growth rate would either increase leverage or obtain additional equity. Dell could finance its higher growth without increasing leverage or obtaining equity By improving w c mgmt efficiency. (TN 3) Dell reduced its cash, receivable, inventory and increased its current liabilities Funding 50% growth in 1997: Funding 50% growth in 1997 Forecast 1997 BS (TN 4) Additional sales of $2648 mn imply additional operating assets of $779 mn At 1996 profit margin of 5.1%, 1997 profits would be $405 mn. AFN would be $315 Current liability levels may affect the AFN PowerPoint Presentation: Efficient management of working capital Improve margins Reduce obsolesce cost Can fund the growth w/o additional fund from outside Combination of WCM efficiency and Profit margin improvements can fund growth, repayment of debt and buy back of shares See actual BS in TN 8 Case Issues: Case Issues Benefits of effective working capital management Explore and understand wcm at Dell Inventory policies of Dell and its competitors Effective use of working capital as source of internal funding for growth Effective wc mgmt avoids substantial cost of obsolesce Working Capital Management in context of rapidly growing, technologically changing industry

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