'Dell Computer Company\r'

' dingle’s works Capital 1. How was dell’s works capital policy a hawkish advantage? dell has achieved low functional capital by keeping its work-in-process and finished goods inscription very low. The competitive advantage dingle achieves from this is that its inventory is significantly set down than its competitors, it does not require large warehouses for stocking the inventories and dell is as well able to adapt the eminent-speed to technology changes in the components. The competitors would find it trying to adapt to technology changes in a nobble time because they have large inventories than dingle does.\r\nIn short, Dell builds computers solely when ordered and thus does not slide by much capital as a result. The declining DSI means that Dell takes increasingly shorter geezerhood to sell its inventory. 2. How did Dell strain its 52% egression in 1996? Dell infallible the following amount to memory its 52% growth in 1996 (using exhibit 4&5 ): direct pluss (OA) = total assets †short status investment OA in 1995 = 1594 †484 = 1110 sea mile USD operate(a) Asset to Sales balance = 1110/3457 = 32% Sales growthd from 3457 to 5296 cubic centimetre USD in 1996. Multiplying the ope proportionalitynal asset to gross revenue ratio by the accession in gross revenue 0. 2 x (5296 †3457) = 582 stat mi USD, which is the in operation(p) assets that Dell holdful to pedigree its 52% growth. This summation in assets meant an summation in liabilities too, proportional to the sales. The ontogenesis in liabilities would be: Liabilities in 1995 = 942 stat mi USD Liabilities to Sales ratio = 942/3475 = 27. 1% Increase in liabilities = 0. 271 x (5296 †3475) = 494 naut mi USD So, Dell would have an annex in operational assets of 582 mil USD and an annex in liabilities of 494 mil USD. The short investments would go along the kindred as it is not related to operations.\r\nOperational benefit would increase with the Operating Profit to Sales ratio: ( interlock realise/sales) x (5296 †3457) = (149/3457) x (5296 †3457) = 227 mil USD In all, we see that a sales increase of 52% has to be funded by 582 mil USD operational assets. The sales increase would also bring special 494 mil USD in liabilities, while generating 227 mil USD of operating lucre, with short condition investments remaining the same at 484 mil USD. As a result, whatsoever two combinations of liabilities, operational profit or short term investments would be enough to offset the 582 mil USD operating assets use uped to sustain the 52% sales growth.\r\nIn 1995, as shown earlier, the operating asset to sales ratio was 32%. Similarly, the ratio in 1996 was (2148 †591)/5296 = 29. 4%. The difference in the plowshares is 2. 54%. This decrease in operating assets in year 1996 suggests that operating efficiency was improve by the same amount. Multiplying this difference in ratio by total sales in 19 96: 5296 x 0. 0254 = 134. 5 mil USD, this amount can be bring down from the originally forecasted 582 mil USD to give the unquestionable additional operating asset necessary to fund the 52% growth: 582 †134. 5 = 447. 5 mil USD. The utmost tolerance in 1995, as shown earlier was 4. % (149/3457). In 1996 it increase to 272/5296 = 5. 14%. This net profit is an increase from the forecasted 227 mil USD ( figuring shown earlier), and can be attributed to improved net margins. Also, we see an increase in flow liabilities of 187 mil USD between 1995 and 1996. We also see that the sum of the increase in current liability and the net profit, of 1996, is higher than the actual additional operating asset requirement: 272 + 187 = 459 mil USD > 447. 5 mil USD. T herefore, Dell funded its 1996 sales growth through internal resources, i. e. reducing its current assets and increasing its net margin. . Assuming Dell sales will grow 50% in 1997, how might the alliance fund this growth i nternally? How much would operative capital need to be cut back and/or profit margin increased? What steps do you recommend the company take? For the year 1996, Operating Assets = correspond Assets †Short term Investments = 2148 †591 = 1557 mil USD When the sales increases by 50% in 1997, operating assets are also expected to increase by 50%. So for 1997, Dell requires an operating asset of 1557 x 1. 5 = 2336 Mil USD. We should also dissemble that the net profit as a percentage of sales will increase proportionally by 50% for 1997.\r\nFor 1996, Net profit as a percentage of sales = 272/5296 = 5. 14% For 1997, Net profit = 5296 x 0. 0514 * 1. 5 = 408 Mil USD For 1997, additional operating asset required = 2336 †1557 = 779 Mil USD How could this be funded by Dell? let us assume two scenarios Scenario 1: let us assume the liabilities remain the same for the year 1997 even when sales increases by 50%, i. e. DELL would not go for any additional liability to fund the increase in operating asset and it would try to do it internally. As per the numeration shown in the attached exhibit, Dell would need 371 Mil USD to fund the increase in sales.\r\nThe following are the ways DELL could fund this increase in operating asset 1. They could liquidate the short term investments of 591 Mil USD which would cover all of the additional funds required. 2. Dell could sell roughly of its fixed assets 3. They could reduce inventories, account receivables, and increase the account account payables. They could bring down the workings capital substantially by having a very low cash cycles/second. They could perform with their suppliers for a higher DPO. With the Just In Time (JIT) concept, they could receive payments immediately from their customers. permit us assume in 1997   |Q4 1996 |Q4 1997 | divagation | |DSI |31 |20 |-11 | |DSO |42 |25 |-17 | |DPO |33 |50 |17 | | 300 |40 |-5 |-35 | So, there is a high possibility to attain a nix cash cycle which in repeal saves on the working capital. Average occasional sales in 1997 = 7944/365 = 21. 8 Mil USD Cost of sales in 1997 = (4229/5296) x 7944 = 6343. 5 Mil USD Average daily cost of sales in 1997 = 6343. 5/365 = 17. 4 Mil USD For the year 1997, nest egg callable to improved cash cycle is\r\nSavings due to reduced inventory days = 11 x 17. 4 = 191. 4 Mil USD Savings due to reduced receivable days = 17 x 21. 8 = 370. 6 Mil USD Savings due to increased payable days = 17 x 17. 4 = 295. 8 Mil USD Total manner of speaking from cash cycle improvements = 857. 8 Mil USD Scenario 2: Let us assume liabilities for 1997 increase proportionally (50%) with the increase in sales, i. e. Dell would look for external financial support for the increase in operating asset. As per the calculation shown in the attached exhibit, Dell would have enough silver to fund the increase in sales with the jibe increase in liabilities.\r\nIn particular they will have an excess of 161 Mil USD assuming the lon g term debt the Great Compromiser unchanged. Dell could use this excess money to repay the long term debt or it could buy back some parking area stocks. 4. How would your answers to Question 3 change if Dell also repurchased $ cholecalciferol mil USD of prevalent stock in 1997 and repaid its long-term debt? Let us assume Dell repurchased 500 Mil USD of common stock in 1997 and it also repaid its long term debt. In such a scenario, as per the calculation shown in the attached exhibit, Dell would need 452 Mil USD to fund the increase in sales. The points discussed in scenario 1 of Q3 holds good here as well.\r\n'