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Dell Financial Health

1.0 Company Profile

Dell Inc. is a global information technology company. It offers a broad range of

technology solutions across the globe. It offers a variety of computing devices to its

customers that include notebooks, personal computers, and tablets. It also provides hyper-

scale and value tower servers to enterprise customers and small organizations respectively.

Dell was incorporated in 1984 in the United States and has its headquarters in Round Rock,

Texas.

2.0 Liquidity Ratios

Liquidity Ratios 2010 2011 2012

Current Ratio 1.489555 1.338485 1.193225

Quick Ratio 1.422779 1.274669 1.134263

Cash Ratio 0.71411 0.629608 0.536243

The liquidity ratios indicate that Dell Inc. is a liquid company. liquidity ratios are used

to evaluate a company`s ability to use its liquid assets and cash to pay its current obligations

as and when they fall due. The current and quick ratios are particularly important in this

respect. For all the three years, Dell`s current and quick ratio have been above 1. This implies

that Dell has sufficient liquid assets to meet its short-term debt obligations as and when they

fall due. However, it is equal worth noting that there has been a consistent decline in all the

three ratios year and after year. In terms of cash ratio, Dell has scored below one, implying

that its cash reserves are not sufficient to cover its current liabilities.

3.0 Leverage Ratios

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Financial Leverage Ratio 2010 2011 2012

Total Debt Ratio 0.80 0.80 0.77

Debt to Equity Ratio 0.56 0.61 0.46

Equity Multiplier 4.97 4.99 4.44

Times interest earned ratio -21.90 -21.62 -16.90Cash coverage -21.90 -21.62 -16.90

Leverage ratios reflect how Dell finances its assets using a combination of debt and

equity. The total debt ratio indicates that the largest percentage of Dell`s assets are financed

through debt. In 2010 and 2011 respectively, the company financed its assets using 80% debt.

In 2011, debt financing reduced by 3% to 77%. In terms of debt to equity ratio, it is evident

that in 2010 and 2011, the company had more debt than equity. However, in 2012, perhaps

due to the reduction in debt financing, debt to equity ratio declined to 44%. The equity

multiplier is above 4.4 for all the three years, reflecting a significant amount of debt in the

company. similarly, the negative times interest earned and cash coverage ratios for the three-

year period implies that debt level in the company is too high to the extent that the company`s

income cannot cover the interest expense. However, it is encouraging that the ratio has been

declining year after year.

4.0 Turnover Ratios

Turnover Ratios 2010 2011 2012

Inventory turnover 38.46 34.34 32.34

Days` sales inventory 7.72 8.26 8.86

Receivables turnover 9.47 9.58 8.59

Days sales in receivables 0.11 0.11 0.11

Total assets turnover 1.59 1.39 1.20

Capital intensity 0.63 0.72 0.83

Turnover ratios reflect the level of operational efficiency that Dell has. While

inventory turnover ratios remained high in 2012 (32 times), it has been declining from year to

year, an indication of reduced sales. The decline in receivables turnover from 2011 to 2012

by approximately one day is remarkable as it indicates improvement in debt collection, which

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enhances the company` liquidity. The company has maintained its days sales in receivables

at 0.11, which indicates Dell`s efficiency in collecting its accounts. From 2010 to 2012, the

day`s sales inventory has consistently increased implying that the number of days inventory

remains on shelf before it is sold has slightly increased. Similarly, the total assets turnover

has declined in the three-year period, indicating reduced efficiency in the way Dell manages

its assets to generate sales. Finally, the capital intensity is at an acceptable level with the

highest level of 0.83 in 2012. This implies that for each dollar worth of sales, the company

uses $0.83.

5.0 Profitability Ratios

Profitability Ratios 2010 2011 2012

Profit margin 0.04 0.06 0.04

Return on assets 0.07 0.08 0.05

Return on equity 0.34 0.39 0.22

Net profit margin 0.04 0.06 0.04

Profitability ratios indicate how well the company is managed. Dell`s profit margin

and net profit margin from 4% to 6% from 2010 to 2011. However, in 2012, the ratios

declined to 4%. The same trend is evident with respect to all the other profitability ratios.

Return on equity has registered the best performance in the three-year period with the highest

performance of 39% in 2011. The low profitability performance can be directly linked to

Dell`s low net income over the same period.

6.0 Summary

The analysis of Dell`s leverage position indicates that that the company is highly in

debt. Even though the management is made efforts in reducing debt levels in 2012, there is

need for increased effort in this direction. The high debt level is likely to scare away potential

investors, and divert resources that would have otherwise been re-invested in the business.

Similarly, from the liquidity analysis, Dell is a liquid company, suppliers and creditors should

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not worry about the company`s ability to meet its debt obligations. However, management

should address the underlying factors that have caused a decline in these ratios year after

year. In addition, From the analysis of the company`s turnover, Dell is in a good financial

health position. However, the management should address the increasing cost of goods sold

that is driving down the inventory turnover. Furthermore, From the analysis of Dell`s

profitability, Dell is profitable. However, the company should improve its profitability and

eliminate fluctuations by reducing on debt given that interest expense has a negative effect on

net income. The company should also reduce on its operating and non-operating expenses, as

a whole Dell has a good financial health that needs to be improved.

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DELL Consolidated Income Statement 2010 2011 2012

Revenues 61,494.00 62,071.00 56,940.00

TOTAL REVENUES 61,494.00 62,071.00 56,940.00

Cost Of Goods Sold 50,041.00 48,211.00 44,687.00

GROSS PROFIT 11,453.00 13,860.00 12,253.00

Selling General & Admin Expenses, Total 7,302.00 8,524.00 8,102.00

R&D Expenses 661 856 1,072.00

OTHER OPERATING EXPENSES, TOTAL 7,963.00 9,380.00 9,174.00

OPERATING INCOME 3,490.00 4,480.00 3,079.00

Interest Expense -199 -279 -270

Interest And Investment Income 47 81 100

NET INTEREST EXPENSE -152 -198 -170

Currency Exchange Gains (Loss) 4 5 -18

Other Non-Operating Income (Expenses) -13 -6 -18

EBT, EXCLUDING UNUSUAL ITEMS 3,329.00 4,281.00 2,873.00

Merger & Restructuring Charges 15 -49 -67

Gain (Loss) On Sale Of Investments 6 8 35

EBT, INCLUDING UNUSUAL ITEMS 3,350.00 4,240.00 2,841.00

Income Tax Expense 715 748 469

Earnings From Continuing Operations 2,635.00 3,492.00 2,372.00

NET INCOME 2,635.00 3,492.00 2,372.00

NET INCOME TO COMMON INCLUDING EXTRA ITEMS 2,635.00 3,492.00 2,372.00

NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 2,635.00 3,492.00 2,372.00

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DELL Consolidated Balance Sheet 2010 2011 2012

Cash And Equivalents 13,913.00 13,852.00 12,569.00

Short-Term Investments 452 966 208

TOTAL CASH AND SHORT TERM INVESTMENTS 14,365.00 14,818.00 12,777.00

Accounts Receivable 6,493.00 6,476.00 6,629.00

Inventory 1,301.00 1,404.00 1,382.00

Prepaid Expenses 374 362 446

Finance Division Loans And Leases, Current 3,643.00 3,327.00 3,213.00

Other Current Assets 2,287.00 2,379.00 2,671.00

TOTAL CURRENT ASSETS 29,021.00 29,448.00 27,968.00

NET PROPERTY PLANT AND EQUIPMENT 1,953.00 2,124.00 2,126.00

Long-Term Investments 704 3,412.00 2,577.00

Goodwill 4,365.00 5,838.00 9,304.00

Other Intangibles 1,495.00 1,857.00 3,374.00

Finance Divis ion Loans And Leases, Long Term 799 1,372.00 1,349.00

Other Long-Term Assets 187 482 842

TOTAL ASSETS 38,599.00 44,533.00 47,540.00

LIABILITIES & EQUITY

Accounts Payable 11,293.00 11,656.00 11,579.00

Accrued Expenses 1,550.00 1,604.00 1,182.00

Short-Term Borrowings 1 1,503.00 1,809.00

Current Portion Of Long-Term Debt/Capital Lease 578 924 1,101.00

Finance Division Debt, Current 272 440 933

Other Current Liabilities 2,102.00 1,704.00 1,655.00

TOTAL CURRENT LIABILITIES 19,483.00 22,001.00 23,439.00

Long-Term Debt 4,318.00 5,467.00 4,887.00

Minority Interest -- -- 21

Finance Division Debt, Non-Current 828 920 355

Other Liabilities, Total 6,204.00 7,228.00 8,158.00

TOTAL LIABILITIES 30,833.00 35,616.00 36,839.00

Common Stock 11,797.00 12,187.00 12,554.00

Retained Earnings 24,744.00 28,236.00 30,330.00

Treasury Stock -28,704.00 -31,445.00 -32,145.00

Comprehensive Income And Other -71 -61 -59

TOTAL COMMON EQUITY 7,766.00 8,917.00 10,680.00

TOTAL EQUITY 7,766.00 8,917.00 10,701.00

TOTAL LIABILITIES AND EQUITY 38,599.00 44,533.00 47,540.00