Dell Computer Corporation (DELL) Income Statement (in thousands, except EPS and Shares) 2/3/2012 1/28/2011 Net revenue 62,071,000 $ 61,494,000 Cost of net revenue 48,260,000 50,098,000 Cost of net revenue (as % of Net Revenue) 77.75% 81.47% Gross Profit ### 11,396,000 Gross Profit (as % of Net Revenue) 22.25% 18.53% Operating expenses: Selling, general and administrat ### 7,302,000 SG&A (as % of Net Revenue) 13.73% 11.87% Research, development and engine ### 661,000 R&D (as % of Net Revenue) 1.38% 1.07% Non Recurring - - Non Recurring (as % of Net Revenue) 0.00% 0.00% Total operating expenses 9,380,000 7,963,000 Total operating expenses (as % of 15.11% 12.95% Operating Income: 4,431,000 3,433,000 Operating Income (as % of Net Rev 7.14% 5.58% Investment and other income(loss),net (191,000) (83,000) Investment and other (as % of Net Revenue) -0.31% -0.13% Income before taxes ### ### Income before taxes (as % of Net Revenue) 6.83% 5.45% Income tax provision 748,000 715,000 Income tax provision (as % of Net Revenue) 1.21% 1.16% Interest Expense Income after Taxes ### ### Income after Taxes (as % of Net Revenue) 5.63% 4.28% Extraordinary income (loss) - - Net income ### ### Net Income (as % of Net Revenue) 5.63% 4.28% Diluted EPS, Cont Ops$ 1.88 1.35 Diluted EPS$ 1.88 1.35 Shares 1,853 1,955 ROCE 41.86% 39.31% ROA 8.40% 7.29% Profit Margin 5.63% 4.28% Assets Turnover 1.49 1.70 Gross margin % 22.25% 18.53% SG&A% 13.73% 11.87% R&D% 1.38% 1.07%
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Dell Computer Corporation (DELL)Income Statement (in thousands, except EPS and Shares)
2/3/2012 1/28/2011 1/31/2010
Net revenue 62,071,000 $ 61,494,000 $ 52,900,000 Cost of net revenue 48,260,000 50,098,000 42,790,000 Cost of net revenue (as % of Net Revenue) 77.75% 81.47% 80.89%
Gross Profit 13,811,000 11,396,000 10,110,000 Gross Profit (as % of Net Revenue) 22.25% 18.53% 19.11%
Operating expenses: Selling, general and administrative 8,524,000 7,302,000 6,470,000 SG&A (as % of Net Revenue) 13.73% 11.87% 12.23% Research, development and engineering 856,000 661,000 624,000 R&D (as % of Net Revenue) 1.38% 1.07% 1.18% Non Recurring ? - - 795,000 Non Recurring (as % of Net Revenue) 0.00% 0.00% 1.50%
Total operating expenses 9,380,000 7,963,000 7,889,000 Total operating expenses (as % of Net Reven 15.11% 12.95% 14.91% Operating Income: 4,431,000 3,433,000 2,221,000 Operating Income (as % of Net Revenue) 7.14% 5.58% 4.20%
Investment and other income(loss),net (191,000) (83,000) (37,000)
Investment and other (as % of Net Revenue) -0.31% -0.13% -0.07% Income before taxes 4,240,000 3,350,000 2,184,000 Income before taxes (as % of Net Revenue) 6.83% 5.45% 4.13%
Income tax provision 748,000 715,000 591,000 Income tax provision (as % of Net Revenue) 1.21% 1.16% 1.12% Interest Expense 160,000
Income after Taxes 3,492,000 2,635,000 1,433,000 Income after Taxes (as % of Net Revenue) 5.63% 4.28% 2.71%
Extraordinary income (loss) - - Net income 3,492,000 2,635,000 1,433,000 Net Income (as % of Net Revenue) 5.63% 4.28% 2.71%
In the period from 1997 to 1999 while having an average profit margins in line with the industry (Dell: 6.68%-8% vs. Industry: 6-8%) Dell was enjoying an incredible ROA (26%-26.2%) and ROCE (79.39%-80.80%). The reason for such great result was Dell's business model that included effective inventory management (Days Inventory 6-9 which is well above the industry average) and Just in time inventory, that is assembled and not produced, making the process less capital intensive, prepayment of its products (low A/R to Sales 0.10-0.12) and negative cash flow cycle (-6.51 to -9.66) which allowed Dell to self finance its operations with its own cash flows and have no interest expense for the period. Combining all this factors together allowed Dell to grow its business very fast and very effectively.
From 2000 to 2010 the financial situation for Dell started to look different. The margins deteriorated over the years (Profit Margins from record 8% to all time low 2.71% in 2010 and Gross Margins dropped to the average of 18.2%) which resulted in decline in ROA (from 18.16% to 4.76%) as well as very volatile ROCE numbers over the 10 year period. The change could be explained by the number of factors: while Asset TO was still high it was steadily declining over the time, Dell tried to change the situation with lower ROCE by employing higher Capital Structure Leverage which was steadily growing from 2.41 to 6.07 (company used outside financing very heavily in 2009 and 2010 boosting it's LTD to TA to a record 11%), change in selling model contributed to the situation as well when Dell started to offer financing options (boosting A/R) for its products. Another major change that came along was the increasing competition in the technology market. While taking all of the above factors into consideration it is worth mentioning that despite the negative changes Dell was still enjoying a negative cash cycle throughout the whole period. To summarize: decline in ROA, profit Margins as well as boost in leverage caused Dell's business to slowdown and possibly enter a mature stage.
HP had a better cost control throughout the years (COGS to Sales are always lower than Dell's), SG&A expense was steadily going down for HP while growing for Dell in recent years. At the same time HP's average ROA 5.46% is much lower than Dell's 13.86%, which could be explained by much lower Asset TO (Dell's average 2.38 vs 1.14) and Inventory TO (66.45 vs 10.05).Also, Dell is better positioned with it's average negative cash cycle of -28 vs HP's positive 40 which allowed it to self finance its operations without incurring interest. Overall it is hard to tell which company is positioned better as both have different business stratgy, however based on the analysis HP has better recent performance while Dell performed better historically in terms of ROA and Asset and Inventory TO.
Hewlett-Packard Company (HPQ)Balance Sheet (in thousands)
PERIOD ENDING 10/31/2011 10/31/2010
ASSETS Current Assets:
Cash and cash equivalents 8,043,000 $ 10,929,000
Short-term investments 3,162,000 2,986,000
Accounts receivable, net 18,224,000 18,481,000
Inventories, net of allowance 7,490,000 6,466,000
Other Current Assets 14,102,000 15,322,000
Total Current Assets 51,021,000 54,184,000 Property Plant and Equipment, net of depreciation 12,292,000 11,763,000 Long-term financing receivables 10,755,000 12,225,000
Goodwill 44,551,000 38,483,000
Intangible Assets, net of amortization 10,898,000 7,848,000 Other non-current Assets - -
Total Assets 129,517,000 124,503,000
LIABILITIES
Current Liabilities:
Short-term borrowing 8,083,000 7,046,000
Accounts payable 18,749,000 18,621,000
Accrued and other 15,113,000 16,207,000
Taxes payable 1,048,000 802,000
Short-term deferred service revenue 7,449,000 6,727,000 Total Current Liabilities 50,442,000 49,403,000
Long Term Debt 22,551,000 15,258,000 Other non-current liabilities 17,520,000 19,061,000
Total Liabilities 90,513,000 83,722,000
STOCKHOLDER'S EQUITY
Common Stock 20,000 22,000
Additional paid-in capital 6,837,000 11,569,000 Retained Earnings 35,266,000 32,695,000 Other Comprehensive Income(Loss) -3,498,000 (3,837,000)
Treasury Stock - - Other Stockholder Equity 379,000 332,000
Total Stockholder Equity 39,004,000 40,781,000 Total Liabilities and Stockholders Equity 129,517,000 124,503,000