finance case

S

Dell Financial CaseRory Conway C10343835Richard Sykes C10322025

Hen Ryan C10363005Adam O’ Flynn C10361039

Follow us on Twitter

With your smartphones please follow us @dellprez

For those without twitter account just Google @dellprez twitter and it will come up

How was Dells working capital policy a competitive advantage?

Dell working capital

Selling directly to customers

Dell had a policy of working with low stock and it used to make stock purchases based on the sale orders received by customers.

This was referred to as Build to order

Dell had 10 % - 20% stock while competitors had 50% - 70%

Dell had Days Supply of Inventory (DSI) as 32 days while the competition average for is:

DSI average = (54 + 73 + 48) / 3 = 58 days

Much lower than the industry average

The lower the better for Dell

DSI average

• No obsolete goods in stock• Little stock taking up space and capital• Quick and efficient ability to adopt to

change in the PC industry• Dell had a first mover’s advantage with

latest technological advancements.• High inventory turnover and low

inventory days. This resulted in low cash conversion cycle (ccc)

Huge competitive advantage

Advantages

How did Dell fund its 52% growth in 1996?

How Did Dell Fund 52% Growth in 1996?

All assets grew by 52%

All liabilities are presumed to have grown by 52%

In order to fund growth;

Operating assets needed to increase by $582 million

Introduced Pentium technology into processors

Unit sales grew by 48%

How might the company fund this growth internally? How much would working capital need to be reduced and/or profit

margin increased? What steps do you recommend the company take?

Growth Internally

There exist several options for a company to finance itself without external help:- Amortization (deduction of asset value narrows profit before tax)- Building reserves (e.g. pension reserves)- Retained earnings (earning are not paid to company owners),- Asset swaps (e.g. selling property or other tangible assets owned by the company)

Now get to our twitter feed to find the secret answer to Question 3