1. Cornelia Wong Wen Chieh
0309544
Chin Pui Man
0310331
Basic Accounting [FNBE 0145]
September 2012 Intake
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2. Table of Content
No. Content Page
1. Company Background 2
2. Recent Development 3
3. Ratio Calculation : i) Profitable Stability 4
ii) Financial Stability 5
4. Ratio Interpretation : i) Profitable Stability 6
ii) Financial Stability 7
iii) Price-Earnings Ratio 8
5. Investment Recommendation 9-11
6. Appendix 12-13
7. Referencing 14
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3. Company Background
When many people think of Dell, they think of personal computers, but that’s just one
part of Dell’s technology portfolio. They innovates the future, technology by
technology.
With multiple business units, groups, teams and positions, the world of Dell is
bustling. Customers can find our niche in any one of their divisions. They will find a
host of products and services to work with:
Servers
Storage
Printing and imaging systems
Workstations
Notebook Personal Computers
Desktop Personal Computers
Networking products
Software and peripheral products
Managed services
Professional services
Deployment services
Support services
Training and certification
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4. Recent Development
Dell has made several acquisitions to improve their product and service offerings:
Dell Financial Services Canada Ltd.
Compellent Technologies, Inc.
Dell SecureWorks®
InSite One®
A record-breaking fourth quarter with double-digit growth in the strategic enterprise solutions
and services space, and the largest single-year revenue increase in company history.
Acquire Secure Works, RNA Networks and Dell Force10 Networks, leaders in enterprise
solutions and services.
Commited $1 billion to develop Dell data and solution centers around the world and open
R&D centers in Israel and the U.S.
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5. Ratio Calculation
Profitable Stability
(in millions)
2009&2010 2010&2011
Average Owner’s Equity : 4271+5641 Average Owner’s Equity :5641+7766
2 2
: 4956 : 6703.5
2010 2011
General & Selling Expense : 6465 General & Selling Expense : 7302
2 2
: 3232.5 : 3651
Profitability Ratios 2010 2011
1433 2635
x 100% = 28.9% x 100% = 39.3%
Return on Equity 4956 6703.5
1433 x 100% 2635
= 2.7% x 100% = 4.3%
Net Profit Margin 52902 61494
9261 x 100% 11396
= 17.5% x 100% = 5.9%
Gross Profit Margin 52902 61494
3232.5 3651
x 100% = 6.1% x 100% = 18.5%
Selling Expense Ratio 52902 61494
3232.5 3651
x 100% = 6.1% x 100% = 18.5%
General Expense Ratio 52902 61494
148 148
x 100% = 0.28% x 100% = 0.24%
Financial Expense Ratio 52902 61494
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6. Financial Stability
(in millions)
2009&2010 2010&2011
Average Inventory :867+ 1051 Average Inventory : 1052+1301
2 2
: 959 : 1176
2009&2010 2010&2011
Average Debtors :4731+5837 Average Debtors :5837+6493
2 2
: 5284 : 6165
Profitability Ratios 2010 2011
24245 29021
Working Capital
28011 = 0.87:1 30833 = 0.94:1
28011 x 100% = 83.24% 30833 x 100% = 79.88%
Total Debt 33652 38599
365 ÷ 43641 = 8 Days 365 ÷ 50098 = 9 Days
Stock Turnover 959 1176
365 ÷ 52902 = 36 Days 365 ÷ 61494 = 37 Days
Debtor Turnover 5284 6165
Days
148+1433 83+2635
= 10.7 times = 32.8 times
Interest Coverage 148 83
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7. Ratio Interpretation
Profitable Stability
During the year 2010 to 2011, the Return on Equity (ROE) has increased from 28.9%
to 39.3%. This means the shareholders are getting more return on their investment.
While for the Net Profit Margin (NPM), it has increased from 2.7% to 4.3% during
the year of 2010 to 2011. Which means Dell is controlling their overall expenses
better at 2011 than 2010.
Besides that, the business ability to control cost of goods sold is getting worstbecause
Gross Profit Margin (GPM) has decreased from 17.5% to 5.9% during the year
2010 to 2011.
During the year 2010 to 2011, the Selling Expense Ratio (SER)and General
Expense Ratio (GER)has increased from 6.1% to 18.5%. This means the business
ability to control selling and general expense are getting worst.
Lastly, during the year 2010 to 2011, Financial Expense Ratio (FER) has decreased
from 0.28% to 0.24%. This is good news as the business ability to control financial
expense is getting better.
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8. Financial Stability
During the year 2010 to 2011, Working Capital (WC) has increased from 0.87:1 to
0.94:1. This means the ability of the current asset of Dell to pay back current liability
is getting better. But at the same time, it does not have the minimum ratio 2:1
requirement.
While for Total Debt (TD) in year 2010 to 2011, it has decreased from 83.24% to
79.88. This means Dell carries less debt than before. However, it is above the 50%
maximum limit.
During the period of 2010 to 2011, Inventory Turnover (IT) has increased from 8
days to 9 days. This means Dell is selling their goods at slower rate.
Besides that, Debtor Turnover (DT) of 2010 to 2011 has increased a day which is
from 36 days to 37 days. Which means Dells is collecting their debt at slower rate.
Last but not least, during the year 2010 to 2011, Interest Coverage (IC) has
increased from 10.7 times to 32.8 times. This means the ability of this business to pay
its interest expense become stronger.
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9. Price-Earnings Ratio (P/E ratio)
Dell current share price is $ 12.6 and earnings per share in year 2011 is $1.36
Ratio: 12.61
1.36 = 9.3
This means, Dell’s price/earnings ratio is 9.3.
Besides that, it also means that if an investor invested this year, he/she have to wait
for 9 years to recoup his/hers investment to claim back his/hers original principal.
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10. Investment Recommendation
Firstly, we will look into profitable and financial stability of year 2010 and 2011. As
we can see from the previous page, numbers and calculations were recorded to refer.
Profitable stability
Return on equity(ROE)
 As the information shown, owner, shareholders and investors are
getting more return on their investment.
 So it is a good point of it.
Net profit margin (NPM)
 The business controls their overall expenses well.
 Thus, more profit the business will make.
 Good point
Gross profit margin (GPM)
 The business couldn’t control their cost of goods sold well.
 It will cause lose to business
 Bad point
Selling Expense Ratio (SER)& General Expense Ratio (GER)
 Couldn’t manage the expenses well
 Cause lose to business
 Bad point
Financial Expense Ratio (FER)
 Managed financial expense well.
 Good point
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11. Financial Stability
Working Capital (WC)
 Better than previous years
 But, unstable because it did not achieve minimum of ratio 2:1
 Strong but risky.
Total Debt (TB)
 Improvement in carries debt.
 But still exceed maximum limit of 50%
 Strong but risky
Stock turnover (ST)
 Sell of stock at slower rate
 Remain the same with previous year
 Strong as a day doesn’t influence much
Debtor Turnover (DT)
 Collect debt at slower rate.
 Strong as it only one day difference.
Interest Coverage (IC)
 Ability to pay interest is strong.
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12. Conclusion
As we can see, the good and strong points are more than bad points. From here, we
got 51% of overall performance. The other 19% from profitable and financial stability
occurs in GPM,SER and GER as Dell couldn’t manage their selling and general
expense and eventually it will effect GPM as it involves cost of goods sold.
Lastly, we would like to related it back to Price-Earnings Ratio, as we can see, it is
under 15. So if we were to invest into a business, we would like to invest into Dell.
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13. Appendix
Dell’s stock price at date Jan 17th,2013, at 1900 hour.
Dell’s balance sheet of year 2009 and 2010.
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14. Dell’s P&L statement of year 2009,2010 and 2011.
Dell’s balance sheet of year 2010 and 2011.
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15. Reference list
1) Form 10-K for Fiscal Year 2011, Dell. Retrieved
Jan 7th, 2013, from
http://content.dell.com/us/en/corp/d/corporate~secure~
en/Documents~FY11_Form10K.pdf.aspx
2) Dell, Nasdaq. Retrieved Jan 17th, 2013, retrieved from
http://www.nasdaq.com/symbol/dell.(Del13)
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