Dell's Working Capital Case

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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| Total...
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