Ratios for Dell

Topics: Financial ratios, Financial ratio, Inventory Pages: 15 (5289 words) Published: April 6, 2005
Financial Ratios for Dell Inc.

Jose Gonzales

Finance 544—Finance for Managerial Decision Making

Kevin Boyle (FAC)

March 9, 2005


Financial Ratios for Dell Inc.

Team D selected Dell Inc. as our company for the team project. Why was Dell chosen? Dell Inc. with annual revenue of $41.4 billion, is a premier provider of computing products and services. Because of its direct business model, Dell was the leading seller of computer systems worldwide and the number one seller in our customer segments in the United States during calendar year 2003. Michael Dell founded the company in 1984 on a simple concept of selling computer systems directly to customers. Using this technique, Dell could best understand customer needs and efficiently provide the most effective computing solutions to meet those needs. Dell's climb to market leadership is the result of a relentless focus on delivering the best customer experience by selling computer system and services directly to customers. Dell, a Delaware corporation, is based in Round Rock, Texas and conducts operations worldwide through wholly owned subsidiaries. The company's business strategy combines its direct customer model with a highly efficient manufacturing and supply chain management organization and an emphasis on standards-based technologies. This strategy enables Dell to provide customers with superior value high quality, relevant technology customized systems; superior service and support; and product and services that are easy to buy and sell. (Form 10K, 2004) A company with an annual revenue of $41.4 billion must be financially sound, right? The answer is…"not necessarily!" However, there are tools available that will help determine if our selected company is financially sound. Ratio analyses are those tools used to evaluate the performance of a business and identify potential problems. Financial Ratios

Financial ratio analysis can teach so much about Dell's accounts and business. For example, using ratio analysis, we can conclude the profitability of Dell. We can also determine if Dell has enough money to pay its bills. Ratio analysis can check whether Dell is performing better this year than it was last year. Additionally, ratio analysis can alert us if Dell is doing better or worse than other businesses selling the same or similar products. http://www.bized.ac.uk/compfact/ratios/intro1.htm Table 1.1 lists the ratios we feel are important for our selected company. Dell Incorporated

Profitability Ratios01/30/2004 01/31/2003 02/01/2002 02/02/2001 01/28/2000

Return on Equity (%)42.12 43.55 26.54 39.77 31.39 Return on Assets (%)13.7 13.72 9.21 16.64 14.52
Return on Investment740.2 601.58 332.88 615.91 482.48 Gross Margin0.018 0.018 0.018 0.02 0.021
Operating Margin (%)8.55 8.03 5.74 8.35 8.96
Net Profit Margin (%)6.38 5.99 4 6.83 6.59

Liquidity Indicators01/30/2004 01/31/2003 02/01/2002 02/02/2001 01/28/2000

Quick Ratio0.81 0.81 0.82 1.27 1.3
Current Ratio0.98 1 1.05 1.45 1.48
Working Capital/Total Assets(0.01) 0 0.03 0.22 0.22

Debt Management01/30/2004 01/31/2003 02/01/2002 02/02/2001 01/28/2000

Current Liabilities/Equity1.74 1.83 1.6 1.16 0.98 Total Debt to Equity0.08 0.1 0.11 0.09 0.1
Long Term Debt to Assets0.03 0.03 0.04 0.04 0.04

Asset Management01/30/2004 01/31/2003 02/01/2002 02/02/2001 01/28/2000

Revenues/Total Assets2.15 2.29 2.3 2.37 2.2
Revenues/Working Capital(157.58) (3,933.78) 87.06 10.82 10.15 Interest Coverage267 179.06 - - -
Table 1.1

As indicated above, four categories were selected to perform our ratio analysis. They are profitability, liquidity, debt management, and...

References: Basu, N. (2004). Investment Analysis. John Molson School of Business. Retrieved on March 6, 2005 from http://jmsb.concordia.ca/~m_guibau/410-ratio.htm
Debt to Equity Ratio. (2005). Retrieved on March 4, 2005 from
http://beginersinvest.about.com/od/financial ratio/
Definition of Asset Turnover Ratio on the Web. (2003). Retrieved on March 3, 2005 from http://www.sanfafaelvolunteers.org/Glossary Financial Detial.htm
Dell 's Financial Practices Lead to "Watered Stock"
Dell 's SEC Fillings. (2005). Retrieved on March 7, 2005 from
Financial Analysis Using Ratios. (2004). Retrieved on March 3, 2005 from http://www.bdc.ca/en/business_tools/calculators/Financial_analysis_using_ratios.htm?Prin...
Financial Formulas from American Express. (2004). Retrieved on March 3, 2005 from http://www.133.americanexpress.com/osbn/tool/ratios/htm
Financial Ratios-Formulas and Examples
Form 10-K, (2004). Dell Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Retrieved on March 5, 2005 from
Mergent database.
Net Profit Margin Ratio. (2005). Retrieved on March 4, 2005
http://beginersinvest.about.com/od/financial ratio/
Quick Ratio. (2005). Retrieved on March 5, 2005 from
Welcome to Ratio Analysis! (2004). Retrieved on March 3, 2005 from http://www.bized.ac.uk/compfact/ratios/intro1.htm
Working Capital Ratio
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