Dell's Working Capital Case

Problem: * Dell Want to continue it’s growth for the next year of 1997 by around the same growth of 1996 since it grow by 52% in that year while the industry grow by 31% and the industry will grow by 20% in 1997 while Dell will grow by 50%. * Dell needs to come with a plan to finance its growth for the year of 1997
Possible solution: * Dell could use external fund to finance their growth taking loan from banks.

* The advantage of that solution is that they can distribute dividends for its investors.

Some possible costs:

* The cost here is the company will be liable which is not good for their plans because they always don’t need external financing.

Recommendation: * Dell should finance their growth internally since they have a lot of retained earnings. * The external financing will be high cost so I don’t advise that option.

** The Income Statement and Balance sheet are below. 1992 | 1993 | 1994 | 1995 | 1996 | | 1997 | Year | 890 | 2,014 | 2,873 | 3,475 | 5,296 | | 7,944 | Sales | 608 | 1,565 | 2,440 | 2,737 | 4,229 | 79.9% | 6,344 | Cost of sale | 282 | 449 | 433 | 738 | 1,067 | | 1,601 | Gross margin | 215 | 310 | 472 | 489 | 690 | 13.0% | 1,035 | Operating Expenses | 67 | 139 | -39 | 249 | 377 | | 566 | Operating income | 7 | 4 | 0 | -36 | 6 | 0.1% | 9 | Financing & other income | 23 | 41 | -3 | 64 | 111 | | 192 | Income taxes | 51 | 102 | -36 | 149 | 272 | | 383 | Net profit |

* Growth is 50%

1994 | 1995 | 1996 | %of sales | 1997 | Year | 3 | 43 | 55 | 1.04% | 83 | Cash | 334 | 484 | 591 | 11.16% | 887 | Short term investments | 411 | 538 | 726 | 13.71% | 1,089 | Accounts Receivables | 220 | 293 | 429 | 8.10% | 644 | Inventories | 80 | 112 | 156 | 2.95% | 234 | Other | 1,048 | 1,470 | 1,957 | | 2,936 | Total Current Assests | 87 | 117 | 179 | 3.38% | 269 | Plant & Equipment | 5 | 7 | 12 | 0.23% | 18 | Other | 1,140 | 1,594 | 2,148 | | 3,222 |