Case Study of Dell's Working Capital Essay

1325 Words Nov 7th, 2015 6 Pages
Case Study of Dell’s Working Capital
Jianduo Guo, Shihao Qi, Michael, Yitsik

Big picture:
With or Without external financing to meet the need of rapid growth
Timeline of Dell is showed as follows:
Calendar Year

Fiscal Year




Expand indirect distribution channels



August: loss from sell-off of excess inventory
September: growth to liquidity & profitability



July: exit low margin indirect channel



Inventory control, notebook market, new tech



Benefit and Cost of just in time manufacturing system
Thanks to just in time manufacturing system, Dell built its brand as an efficient and flexible company which keeps pace to
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Estimation of fiscal year 1996 and Comparison
Based on the assumption that operation of fiscal year 1996 would repeat that of 1995, which means operating expenses would have the same growth rate as 1995 (growth rate=(489-472)/472=3.6%) and financing & other income would remain the same, and sales were to rise by 52% indicating that cost of sales would also increase by 52%, the net profit would be $495.87 using the same tax rate as fiscal year 1995. Shown by
Exhibit 1.

The difference of estimated net profit and actual net profit is mainly caused by the steep increase of operating expenses in real world, which can be explained by the fact that
Dell’s effort to improve its ROIC and CCC performance.

As for the balance sheet of fiscal year 1996, we hypothesize that each item of assets except cash and each item of current liabilities would rise by the same rate of sales which is 52%, while long-term debt and preferred stock would remain the same. Then retained earnings can be calculated by adding net profit of 1996 to 1995’s retained earnings based on the assumption that the dividend would increase by 52%.

From the cash flows statement of 1996, we forecast that cash would increase $142.27, according to which we calculate the cash of 1996 and get the detailed balance sheet in
1996. We leave the Common Stock blank to calculate it by subtracting Total Assets from
Total Liabilities and Current Stockholders’ Equity ($2554.79 - $1333.04

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