DELL’s Working Capital
1. How was Dell’s working capital policy a competitive advantage? Dell has achieved low working capital by keeping its work-in-process and finished goods inventory very low. The competitive advantage Dell achieves from this is that its inventory is significantly lower than its competitors, it does not require large warehouses for stocking the inventories and Dell is also able to adapt the fastest to technology changes in the components. The competitors would find it difficult to adapt to technology changes in a short time because they have larger inventories than Dell does. In short, Dell builds computers only when ordered and thus does not spend much capital as a result. The declining DSI means that Dell takes increasingly shorter days to sell its inventory.
2. How did Dell fund its 52% growth in 1996? Dell needed the following amount to fund its 52% growth in 1996 (using exhibit 4&5): Operating assets (OA) = total assets – short term investment OA in 1995 = 1594 – 484 = 1110 Mil USD Operating Asset to Sales ratio = 1110/3457 = 32% Sales increased from 3457 to 5296 Mil USD in 1996. Multiplying the operating asset to sales ratio by the increase in sales 0. 2 x (5296 – 3457) = 582 mil USD, which is the operating assets that Dell needed to fund its 52% growth. This increase in assets meant an increase in liabilities too, proportional to the sales.
The increase in liabilities would be: Liabilities in 1995 = 942 Mil USD Liabilities to Sales ratio = 942/3475 = 27. 1% Increase in liabilities = 0. 271 x (5296 – 3475) = 494 mil USD So, Dell would have an increase in operating assets of 582 mil USD and an increase in liabilities of 494 mil USD. The short investments would remain the same as it is not related to operations.
Operational profit would increase with the Operating Profit to Sales ratio: (net profit/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 operating assets. The sales increase would also bring an additional 494 mil USD in liabilities, while generating 227 mil USD of operating profit, with short term investments remaining the same at 484 mil USD. As a result, any two combinations of liabilities, operational profit, or short term investments would be sufficient to offset the 582 mil USD operating assets needed to sustain the 52% sales growth.
In 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 percentages is 2. 54%. This decrease in operating assets in the year 1996 suggests that operating efficiency was improved by the same amount. Multiplying this difference in a ratio by total sales in 1996: 5296 x 0. 0254 = 134. 5 mil USD, this amount can be reduced from the originally forecasted 582 mil USD to give the actual additional operating asset required to fund the 52% growth: 582 – 134. 5 = 447. 5 mil USD. The net margin in 1995, as shown earlier was 4. % (149/3457). In 1996 it increased to 272/5296 = 5. 14%. This net profit is an increase from the forecasted 227 mil USD (calculation shown earlier) and can be attributed to improved net margins. Also, we see an increase in current 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. Therefore, Dell funded its 1996 sales growth through internal resources, i. e. reducing its current assets and increasing its net margin. Assuming Dell’s sales will grow 50% in 1997, how might the company fund this growth internally? How much would working capital need to be reduced and/or profit margin increased? What steps do you recommend the company take? For the year 1996, Operating Assets = Total 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 assume that the net profit as a percentage of sales will increase proportionally by 50% for 1997.
For 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 assets and it would try to do it internally. As per the calculation shown in the attached exhibit, Dell would need 371 Mil USD to fund the increase in sales. The 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.
3. They could reduce inventories, account receivables, and increase the account payables. They could bring down the working capital substantially by having a very low cash cycle. They could negotiate with their suppliers for a higher DPO. With the Just In Time (JIT) concept, they could receive payments immediately from their customers. Average daily 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, savings due to improved cash cycle. Savings 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 saving 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 funding for the increase in the operating assets. As per the calculation shown in the attached exhibit, Dell would have enough money to fund the increase in sales with the corresponding increase in liabilities. In fact, they will have an excess of 161 Mil USD assuming the long term debt remains unchanged. Dell could use this excess money to repay the long term debt or it could buy back some common stocks.
4. How would your answers to Question 3 change if Dell also repurchased $500 mil USD of common 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.
Why Choose Instant Nursing Papers?
Quality Nursing Papers
We assist students in achieving the best top-grade in their nursing papers, and in compliance with the provided instructions. Have your nursing paper written with a certified specialist Ph.D., Bachelor's, and Master's graduates with many years of experience in academic writing.
Experts with Ph.d., MDs and DNP Holders
Our writers have acquired Ph.D., MDs and DNP credentials from world class institutions. Our writers can handle papers from any discipline and can handle over 100+ subjects.
Nursing Papers Cheap
We provide a great deal of student-friendly prices and professionalism with all our nursing essay writing services. Our paper writing services have a user-friendly interface and professional nursing academic assistance. We are committed to assisting all students with their nursing assignments and projects regardless of their academic level.
Fast Paper Delivery
Our writers follow a strict schedule to ensure papers are delivered before the deadline to enable our editors to proofread before the final delivery to our customers. We strictly observe the early delivery of assignments to meet our clients' deadlines.
Plagiarism-free Nursing Papers
Our expert nursing paper writers are dedicated to conducting thorough research and writing papers from scratch to deliver original papers. To avoid paper plagiarism, all orders go through steps of writing, editing, and proofreading.
24Hour Customer Help
Our customer support is available 24/7/365 to help clients and make their paper writing services easy to use. Our experienced support team is available to answer your queries any time, 24 hours a day.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our Nursing Papers Writing Service
We provide Nursing Assignment Services to Nursing students. Also, we are not limited to providing Nursing assignment help to students only. We also provide assignment help and solutions to community health nursing, Anatomy & Physiology, Microbiology, Biochemistry and Biophysics, and Nutrition & Dietetics.
Sit back, relax while our writers sort you out on your most daunting nursing essay queries on how to write a good nursing essay. We got you if you are looking for the best nursing essay services.
It is no doubt that qualifying for a nursing career is difficult and requires a series of tests. Most nursing students must put in a lot of work in their assignments and coursework. Instantnursingpapers.com will help you answer queries such as “who can write my nursing research paper?”.
Nursing Dissertation Help
Instantnursingpapers.com will save you the hustle of undergoing pressure or even depression while doing your nursing dissertation paper. Save yourself from all the long sleepless nights and pressure by working with our best nursing dissertation writing professionals.
Nursing Coursework Help
If you happen to hop into our site in search of nursing coursework help, look no further. We are the number one solution for the best nursing coursework assignments. Therefore, to complete the best APA nursing coursework, seek help from professional nursing coursework experts at instantnursingpapers.com