Case Soultion for Dell's Working Capital

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Case Summary

Dell was one of the greatest examples of a company that emerged in the tech bubble and survived when the bubble burst to be a leading example of one of the biggest companies, and the most successful one in the current time.

The reason for this success was attributed to a single revolutionary model, which is Just-In-Time inventory management. From a financial point of view, this is an answer to one of the biggest problems that can face any company, which is cashflow management.

This company managed to get one of the lowest WIP and raw material inventory in its industry, which placed it as one of the highest growing companies in history, and also gave it a big leap compared to its competitors between 1990 and 1996.

Case Problem

Dell Corporation would like to continue its rapid growth and have a double-digit growth rate that outbases the industry growth rate. The problem with that is that management would like to have a complete plan on how to finance this growth, which was previously done internally. Furthermore, the company would like to know whether it has an adequate cash to support its working capital.

The Approach to Solve the Problem

In order to know the future financing needs of Dell computers, we need to have a pro forma financial statement with an accurate a realistic assumption of the exact financing needs of this rapid growth. Then, from the pro forma financial statements we can understand whether we have the ability to finance the growth internally, and if so, what is the exact exposure for next year 1997, and what exactly is the needed working capital.

Forecasting Assumptions

- An industry growth rate of 20% (Dell expects to exceed this rate by almost double. Estimated growth for Dell will be 40% annually) with a net profit margin of 5%. - Current assets, current liabilities and fixed assets will increase proportionally with the increase in sales (a rate of 40%) - No assumption of any additional sources of long...
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