Dell's Working Capital Business Case

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Assigment 1 Dell’s working Capital
Student numberNameClass
0804809Shu Pei SunBE37
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Question 1:
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5 punten

Calculate the level of working capital for Dell for the years 1994, 1995 and 1996. (Please show the full calculation and formula’s used)

The total current assets in 1996 are: $ 1.957.000
The total current assets in 1995 are: $ 1.470.000
The total current assets in 1994 are: $ 1.048.000

The total current liabilities in 1996 are: $ 939.000
The total current liabilities in 1995 are: $ 752.000
The total current liabilities in 1994 are: $ 538.000

Work capital of 1996 is: $ 1.957.000 - $ 939.000 = $ 1.018.000 Work capital of 1995 is: $ 1.470.000 - $ 752.000 = $ 718.000 Work capital of 1994 is: $ 1.048.000 - $ 538.000 = $ 510.000

Question 2:
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10 punten

Calculate the Quick Ratio and Current Ratio for Dell for the years 1994, 1995 and 1996 and give your opinion about those figures. (Please show the full calculation and formula’s used)

The total current assets in 1996 are: $ 1.957.000
The total current assets in 1995 are: $ 1.470.000
The total current assets in 1994 are: $ 1.048.000

The total current liabilities in 1996 are: $ 939.000
The total current liabilities in 1995 are: $ 752.000
The total current liabilities in 1994 are: $ 538.000

Current ratio of 1996 is: $ 1.957.000 / $ 939.000 = 2,08
Current ratio of 1995 is: $ 1.470.000 / $ 752.000 = 1,95
Current ratio of 1994 is: $ 1.048.000 / $ 538.000 = 1,95

Question 3:
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20 punten

Calculate the increase in inventory (in US Dollars) that DELL would have needed if it operated at Compaq’s Days Supply of Inventory (DSI) level. Give your opinion about the outcome. (Use the figures from 1995). (please show the full calculation and formula’s used)

Question 4:
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In the case in Tabel A, the the Days Supply of Inventory (DSI) is calculated as follows:
please notice that Cost of Goods Sold (COGS) is the same as Cost of Sales (COS)

Calculate in a different way the Days Supply of Inventory (DSI) for Dell for the years 1994 and 1995 (use Exhibit 4 and 5) (please show the full calculation and formula’s used)

A different way to calculate the DSI:
Average Inventory / (Annual Cost of Goods Sold / 365)

DSI of 1994: (220.000.000+293.000.000/2) / (2440.000.000/365) = 38 DSI of 1995: (293.000.000+429.000.000/2) / (2737.000.000/365) = 48

Question 5:
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10 punten

Please motivate why Dell probably used the following formula for calculating their DSI?

Question 6:
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20punten

In the case is mentioned “As new technology replaced old, the prices of components fell by an average of 30% per year” (page 2). What would be the inventory loss for Dell for 1995, if they would operated at the DSI level from Compaq? (please show the full calculation and formula’s used)

Question 7:
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Please motivate how Dell’s working capital policy was a competitive advantage. Dell used its working capital policy as a competitive advantage by reducing the amount of WIP and finished goods inventory in its system. As a result of maintaining a minimum amount of inventory, Dell reduced its need for inventory financing, warehousing and inventory control. Dell kept its accounts payable (A/P) account to a minimum volume by waiting until the customers order was received before placing the “release” order with their suppliers. Dell’s suppliers were all located very close to Dells manufacturing plants, and made daily deliveries to Dell based on just-in-time delivery. By not receiving the parts until the last minute, Dell kept both its inventory and its accounts payable to a...
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