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Dell Computer Analysis

Dell Computer Analysis Dell Computers is one of the world's top PC makers and the world's #1 direct-sale computer vendor. Led by founder Michael Dell -- the longest-tenured CEO of any major US computer company, who owns 12% of his creation -- the company sells hardware and markets third-party software and peripherals. Products include PCs (about 55% of sales), notebooks, and network servers. Government entities, large businesses, and educational institutions buy nearly 60% of its systems. Dell is expanding services such as its Web site (which processes half of the company's transactions), online business consulting, and its Dell Ventures private investment arm. The format of the annual report was very easy to follow. The first couple of pages dealt with the history of the company, while the last few sections dealt with all the numbers. It was very clear and easy to understand. The annual report was very complete in that it gave me all the information I needed to complete the analysis. The annual report was a good way for me to see how the company worked and what they strive for. The annual report also helped me better understand how companies use their money in a fiscal period. Debt Paying Ability: The Debt paying ability of the company is the ability for a company to repay all of its debts. The more a company can repay its debts, the more successful the company is. The success of the business determines whether or not creditors will receive the amount promised by the company. When a business fails to repay its creditors, its debt paying ability goes lower while the money owed increases. Who wants to invest in a company that cannot repay its debts. It is like giving someone money who you know will not pay you back. To find out What Dell Computers Debt paying ability, I used its current ratio, , financial leverage, and its total debt to equity ratio. I then compared this to the market rates, and the competing industry rates. This gave me the conclusion that Dell is a company that is well suited for its Debt Paying abilities. Financial Ratios Company Industry Market Current Ratio Current assets/ Current liabilities 1.80 1.64 1.41 Leverage Ratio Total Assets/ Stock Holders Equity 2.69 2.13 5.28 Total Debt/Equity 0.18 0.08 1.34 Organizations Profitability: To determine Dells profitability I used these ratios: Gross Profit Margin, Net Profit Margin, Return on Equity, and Return on Assets. Profitability depends on the company’s success in selling its products and controlling its costs. By computing these ratios I was able to determine that Dell is a profitable company in that it better suited than its competing market, and industries. Its return on equity really caught my eye at a whooping 56%. This compared to the industry and market values shows that Dell is a very profitable company. Profitability Ratios Company Industry1 Market2 Gross Profit Margin Net income/operating Revenue 22.85% 25.35% 46.19% Net Profit Margin Net income/operating expenses 8.00% (0.15%) 5.39% Return on Equity net income/ stockholders eq 56.4% -- 13.7% Return on Assets Net Income/ total Assets 21.0% (0.3%) 2.6% Operational Efficiency: The operation efficiency of a company determines how can company can use its money to create products from raw materials. Operation efficiency also determines how the company can use resources to design, produce, distribute, and market goods and services. To create profits a company must use it assets effectively to create and sell products demanded by customers. It must also operate efficiently so that revenues exceeds expenses. The following ratios helped me determine the operation efficiency of Dell Computers. I also took the average of the industry and market competition. Operating Ratios Company Industry1 Market2 Inventory Turnover cost of goods sold/ inventory 56.4 22.5 8.3 Asset Turnover operating revenues/ total assets 3.2 2.1 0.5 Discussion: I found that the most useful parts of the report were the balance sheet, income statement, and the stockholders equity statement. The report couldn’t be more useful, because all the information is relevant to how the company uses its money, and is a key to how a person will invest in this company. I feel that a long time investment with this company will earn huge profits in the long run. A short term investor will not likely see big profits, maybe a gain here and their, but to a long time investor, this company is Gold! If I were given a chance to ask a question to the management of the corporation, I would ask them if the information is truly correct in the annual report. Some companies lie about certain information just to make the company look better on paper than it really is. Bibliography:

Word Count: 891