Dell's Working Capital

Harvard Business School Case #201-029

Case Software #XLS039

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Table A Days Supply of Inventory (DSI)a

1993b 1994b 1995b

Dell Computer 55 33 32

Apple Computer 52 85 54

Compaq Computer 72 60 73

IBM 64 57 48

Source: Dell Computer Corporation Fiscal 1993-1995 Annual Reports; case writer estimates from Apple Computer, Compaq
Computer, and IBM Fiscal 1992-1994 Annual Reports.
a
DSI = (Net Ending Inventory)/(Quarterly COGS/90 Days)
Dell’s fiscal calendar ends in January; Apple’s in September; Compaq and IBM’s in December. The DSI for 1995 represents
b

Dell’s DSI for the quarter ended on 1/29/95, Apple’s on 9/30/94, and Compaq’s and IBM’s on 12/31/94.
Exhibit 1 Dell’s annual worldwide sales dollar growth versus industry.

Calendar Year Della Industry

1991 63% -2%
1992 126% 7%
1993 43% 15%
1994 21% 37%
1995 52% 31%

Source: Dell Computer Corporation Fiscal 1996 Annual Report; case writer estimates
from industry market share data from International Data Corporation.

a
Dell’s fiscal year closest in alignment to calendar year stated.
Exhibit 2 Working Capital Financial Ratios for Dell.

DSIa DSOb DPOc CCCd

Q193 40 54 46 48
Q293 44 51 55 40
Q393 47 52 51 48
Q493 55 54 53 56
Q194 55 58 56 57
Q294 41 53 43 51
Q394 33 53 45 41
Q494 33 50 42 41
Q195 32 53 45 40
Q295 35 49 44 40
Q395 35 50 46 39
Q495 32 47 44 35
Q196 34 47 42 39
Q296 36 50 43 43
Q396 37 49 43 43
Q496 31 42 33 40

Source: Dell Computer Corporation fiscal 1993-1996 annual and quarterly reports.
a
DSI (Days Sales of Inventory) = Net Inventory / (Quarterly COGS/90).
b
DSO (Days Sales Outstanding) = Net Accounts Receivables / (Quarterly Sales/90).
c
DPO (Days Payables Outstanding) = Accounts Payables / (Quarterly COGS/90).
d
CCC (Cash Conversion Cycle) = DSI + DSO – DPO.
Exhibit 3 Percent of Dell Computer Systems Sales by Microprocessor.

Computer Systems FY94 FY95 FY96

386 models 7% 0% 0%
486 models 92% 71% 25%
Pentium models 1% 29% 75%

Source: Dell Computer Corporation Fiscal 1994-96 Annual Reports.

Exhibit 4 Profit & Loss Statements for Dell Computer Corporation (millions of dollars).

Fiscal Year 1996 1995 1994 1993 1992

Sales $5,296 $3,475 $2,873 $2,014 $890
Cost of Sales 4,229 2,737 2,440 1,565 608
Gross Margin 1,067 738 433 449 282
Operating Expenses 690 489 472 310 215
Operating Income 377 249 (39) 139 67
Financing & Other Income 6 (36) 0 4 7
Income Taxes 111 64 (3) 41 23
Net Profit 272 149 (36) 102 51

Source: Dell Computer Corporation Fiscal 1996 Annual Report.

Exhibit 4 Profit & Loss Statements for Dell Computer Corporation (millions of dollars).

Fiscal Year 1996 1995 1994 1993

Sales $5,296 $3,475 $2,873 $2,014
Cost of Sales 4,229 2,737 2,440 1,565
Gross Margin 1,067 738 433 449
Operating Expenses 690 489 472 310
Operating Income 377 249 (39) 139
Financing & Other Income 6 (36) 0 4
Income Taxes 111 64 (3) 41
Net Profit 272 149 (36) 102

Assume COGS remain same for the competitor of DELL

DELL Apple Compaq IBM

Per day Cost of sales 7.49863 7.49863 7.49863 7.49863
Avergae Inventory holding 239.9562 404.926 547.4 359.9342
Dell advantage on Inventory 164.9699 307.4438 119.9781
Amount the other company loss 49.49096 92.23315 35.99342
 Table A Days Supply of Inventory (DSI)a

1992 1993b 1994b 1995b

$890 Dell Compu 55 33 32
608
282 Apple Com 52 85 54
215
67 Compaq Co 72 60 73
7
23 IBM 64 57 48
51

DSIa DSOb DPOc CCCd

Q195 32 53 45 40
Q295 35 49 44 40
Q395 35 50 46 39
Q495 32 47 44 35

CCC decrease for the quarter of Dell respectively so they can convert cash on hand into inventory and a
hand into inventory and accounts paybale more quickly on quarterly basis and again convert that into cash
 Year Ended
January 28, January 29, January 30,
1996 1995 1994
Current Assets:
Cash 55 43 3
Short Term Investments 591 484 334
Accounts Receivables, net 726 538 411
Inventories 429 293 220
Other 156 112 80
Total Current Assets 1,957 1,470 1,048
Property, Plant & Equipment, net 179 117 87
Other 12 7 5
Total Assets 2,148 1,594 1,140

Current Liabilities:
Accounts Payable 466 403 NA
Accrued and Other Liabilities 473 349 NA
Total Current Liabilities 939 752 538
Long Term Debt 113 113 100
Other Liabilities 123 77 31
Total Liabilities 1,175 942 669
Stockholders’ Equity:
Preferred Stocka 6 120 NA
Common Stocka 430 242 NA
Retained Earnings 570 311 NA
Other (33) (21) NA
Total Stockholders’ Equity 973 652 471
2,148 1,594 1,140

Exhibit 4 Profit & Loss Statements for Dell Computer Corporation (millions of dollars).

Fiscal Year 1996 1995 1994 1993 1992

Sales $5,296 $3,475 $2,873 $2,014 $890
Cost of Sales 4,229 2,737 2,440 1,565 608
Gross Margin 1,067 738 433 449 282
Operating Expenses 690 489 472 310 215
Operating Income 377 249 (39) 139 67
Financing & Other Income 6 (36) 0 4 7
Income Taxes 111 64 (3) 41 23
Net Profit 272 149 (36) 102 51
 Total Asset Increase 1,594
Short term investment 484
Total asset without investment 1,110
percent on sales 31.94%
So the growth required to fund 52% $577.20

To increase the cash flow it need to generate cash from its debt and Sales
Amount geerate from without account payble 491

Net profit as a percentage of sales in1995 4%

Contribution from net profit $345.16

Total growth $836.16

The growth is more than the funding amount

 DSI in 1997 34.5
COGS in 1997 6343.5
Inventory in 1997 599.5911
Accounts recevable 1089
Account Payable 699
Total working capital 1044.591

Net profit 408

Working capital needs tob be reduced to 636.5911

need to increase DSO and account payable

Total operating asset in 1996 1,557

operating percentage of sales 29%
Sales in 1997 $7,944.0
Operating asset in 1997 $2,335.50
Growth require for funds $778.50

Liabilities without account payable 1,682

percentage of sales 32%
Liabilities without account payable in 1997 $2,523.0
Liabilities without account payable increase $841.00

Net profit percentage on sales 5.14%

Growth in Sales in 1997 $408.0

Total growth $1,249.00

llion common stock and paid long term debt

Total growth would be $1,391.50

Exhibit 2 Working Capital Financial Ratios for Dell.

DSIa DSOb
Q193 40 54
Q293 44 51
Q393 47 52
Q493 55 54
Q194 55 58
Q294 41 53
Q394 33 53
Q494 33 50
Q195 32 53
Q295 35 49
Q395 35 50
Q495 32 47
Q196 34 47
Q296 36 50
Q396 37 49
Q496 31 42

Exhibit 4 Profit & Loss Statements for Dell Computer Corporation (

Fiscal Year 1996 1995

Sales $5,296 $3,475
Cost of Sales 4,229 2,737
Gross Margin 1,067 738
Operating Expenses 690 489
Operating Income 377 249
Financing & Other Income 6 (36)
Income Taxes 111 64
Net Profit 272 149
Ratios for Dell. Year Ended
January 28, January 29,
DPOc CCCd 1996 1995
46 48 Current Assets:
55 40 Cash 55 43
51 48 Short Term Investments 591 484
53 56 Accounts Receivables, net 726 538
56 57 Inventories 429 293
43 51 Other 156 112
45 41 Total Current Assets 1,957 1,470
42 41 Property, Plant & Equipment, net 179 117
45 40 Other 12 7
44 40 Total Assets 2,148 1,594
46 39
44 35 Current Liabilities:
42 39 Accounts Payable 466 403
43 43 Accrued and Other Liabilities 473 349
43 43 Total Current Liabilities 939 752
33 40 Long Term Debt 113 113
Other Liabilities 123 77
Total Liabilities 1,175 942
Stockholders’ Equity:
or Dell Computer Corporation (millions of dollars). Preferred Stocka 6 120
Common Stocka 430 242
1994 1993 1992 Retained Earnings 570 311
$2,873 $2,014 $890 Other (33) (21)
2,440 1,565 608 Total Stockholders’ Equity 973 652
433 449 282 2,148 1,594
472 310 215
(39) 139 67
0 4 7
(3) 41 23
(36) 102 51
ear Ended
January 30,
1994 1997

3
334
411
220
80
1,048
87
5
1,140

NA
NA
538
100
31
669

NA
NA
NA
NA
471
1,140
Exhibit 5 Balance Sheets for Dell Computer Corporation (millions of dollars).

Year Ended
January 28, January 29, January 30,
1996 1995 1994
Current Assets:
Cash 55 43 3
Short Term Investments 591 484 334
Accounts Receivables, net 726 538 411
Inventories 429 293 220
Other 156 112 80
Total Current Assets 1,957 1,470 1,048
Property, Plant & Equipment, net 179 117 87
Other 12 7 5
Total Assets 2,148 1,594 1,140

Current Liabilities:
Accounts Payable 466 403 NA
Accrued and Other Liabilities 473 349 NA
Total Current Liabilities 939 752 538
Long Term Debt 113 113 100
Other Liabilities 123 77 31
Total Liabilities 1,175 942 669
Stockholders’ Equity:
Preferred Stocka 6 120 NA
Common Stocka 430 242 NA
Retained Earnings 570 311 NA
Other (33) (21) NA
Total Stockholders’ Equity 973 652 471
2,148 1,594 1,140

Source: Dell Computer Corporation Fiscal 1994-1996 Annual Reports.

a
1,190,000 shares of preferred stock converted to common stock in fiscal year 1996.