Dell Inc. Investment Strategy Harvard Case Solution & Analysis

Overview of the Dell Company

 Dell is one of the world’s major PC manufacturers that sold a wide range of high quality products and services to the customers and it is based in Austin, Texas. The products and services of Dell include PCs, network switches, servers, data storage devices, software, television and computer peripherals. In the PC industry, there are four key rivals of Dell that are competing directly with each other to enhance their market shares  and these are Acer Inc., Apple Inc., Hewlett- Packard and Lenovo. The business model of Dell has positioned on delivering the high quality based products and services to the customers directly to enhance their buying experience as compared to many PC manufacturers in the industry. However, in July 2007 Dell has modified the strategy by deciding to sell its PCs through retail channels.

Question 1

What is your assessment of Dell's performance and financial health?

Assessment of Dell's performance and financial health

Following are the financial ratios that are evaluated in order to assess Dell’s financial performance and health. In addition to this, the financial exhibits that are given in the case are used measure the financial performance of the company.

  • Liquidity Ratios
  • Efficiency
  • Financial Leverage
  • Profitability
  • Valuation Metrics Analysis

Liquidity Ratios

The cash & market sec. to total asset ratio of the company was decreased in 2008 as compared to last year .The cash & market sec. to total asset ratio of the company in 2007 was 0.40x while in 2008 this decreased to 0.29x showing that the company has less liquid assets that can be easily convert into cash. The acid test ratio of the company in the year 2007 was 0.84x whereas, in the year 2008 it was 0.75x and this showed that the liquidity position of Dell is not good as the acid test ratio indicated a reduction throughout 2008. The current ratio of Dell during the time period 2008 also indicated the decline in the previous year. The current ratio in 2007 was 1.12x that decreased to 1.07x in 2008 displaying that Dell’s current assets are not enough in order to pay off its current liabilities.

 By analyzing the liquidity ratios from the exhibit 10, it is concluded that the liquidity condition of the company is not satisfactory. As well as it is not sufficient to meet the current requirements of the company that may affect the growth and productivity of Dell in the coming years (refer to exhibit 10).

Efficiency

The days receivable ratio, days of inventory ratio, days payable ratio and total turnover are studied in order to examine the performance and efficiency of Dell. The days receivable ratio of Dell was increased in 2008 than the last year as days receivable ratio in 2007 was 29.4 whereas, in the year 2008 it was 35.6 ( refer to exhibit 10). This increase in the days receivable ratio demonstrated the amount of time Dell took in order to collect its receivables.

 Moreover, days payable ratio of Dell also indicated an increased during the year 2008 as compared to the previous years. Whereas, in 2004 the days payable ratio was 78.8 that increased throughout the five years and in the year  2008 it increased to 84.8 reflecting the increase in the time that Dell took in order to pay its due amount to its suppliers (refer to exhibit 4).

  Days of inventory ratio of Dell also displayed an increase during the year 2008, whereas in 2004 the days of inventory ratio was 3.5 that increased to 8.7 in the year 2008. The days of inventory ratio represented the increase in the duration that the company takes in order to convert the inventory into good sold. The total assets turnover ratio of Dell was persistent during the five years from the year 2004 to 2008, as it represented consumption of the resources by Dell which was not efficient (refer to exhibit 4).

Financial Leverage

Debt to total assets ratio indicated that it marginally declined for the year 2008 as compared to the previous years. In addition to this, debt to total assets ratio of Dell in 2004 was 2.6% that reduced to 2.1% in 2008 after an increase of 3.0% in 2007 (refer to exhibit 4). However, debt to total assets ratio indicated the percentage of assets that are financed by using the debt........................

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