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.

 P&L for Dell Computer Corporation (millions of dollars).

Fiscal Year 1996.00 1995.00

Sales 5296.00 3475.00

Cost of Sales 4229.00 2737.00

Gross Margin 1067.00 738.00
Operating Expenses 690.00 489.00
Operating Income 377.00 249.00
Financing & Other Income 6.00 -36.00
Income Taxes 111.00 64.00
Net Profit 272.00 149.00
Balance Sheet for Dell Computer Corporation (millions of dollars).
Year Ended
January 28, January 29,

1996.00 1995.00
Current Assets:
Cash 55.00 43.00
Short Term Investments 591.00 484.00
Accounts Receivables, net 726.00 538.00
Inventories 429.00 293.00
Other 156.00 112.00
Total Current Assets 1957.00 1470.00
Property, Plant & Equipment, net 179.00 117.00
Other 12.00 7.00
Total Assets 2148.00 1594.00

Current Liabilities:
Accounts Payable 466.00 403.00
Accrued and Other Liabilities 473.00 349.00
Total Current Liabilities 939.00 752.00
Long Term Debt 113.00 113.00
Other Liabilities 123.00 77.00
Total Liabilities 1175.00 942.00
Stockholders’ Equity:
Preferred Stocka 6.00 120.00
Common Stocka 430.00 242.00
Retained Earnings 570.00 311.00
Other -33.00 -21.00
Total Stockholders’ Equity 973.00 652.00
2148.00 1594.00

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.
 1995.00
SGR disregarding
Sustainabilty STI - ( STI not
growth rate - SGR growing with sales )

Profitabilty rate 4% 4%
Asset utilisation rate 3.05 4.31
Financial utilisation rate 2.42 5.88
ROE 32% 109%
Retention rate 100% 100%
s of dollars).
Growth in Sales in Growth in Sales in
1996 52% 1997

NP of 1996 based NP of 1997 based on

on 1995 227 1996
Profitability Ratios 1996.00 1995.00

Gross margin % 20.1% 21.2%

Operating income % 7.1% 7.2%
Net profit % 5.1% 4.3%

illions of dollars). Projection for 1996

r Ended
January 30, % of Sales Case - 1

Current Liability
Fixed as per 1995
1994 1996.00 1995.00

3 1% 1% 66
334 11% 14% 484
411 14% 15% 820
220 8% 8% 447
80 3% 3% 171
1,048 37% 42% 1987
87 3% 3% 178
5 0% 0% 11
1,140 40% 46% 2176
GAP IN BALANCE SHEET - FUNDING
REQUIREMENT 355

NA 9% 12% 403
NA 9% 10% 349
538 18% 22% 752
100 2% 3% 113
31 2% 2% 77
669 22% 27% 942

NA 0% 3%
NA 8% 7%
NA 11% 9%
NA -1% -1%
471 18% 19% 879
1140.00 41% 46% 1821
TOTAL EQUITY AND LIABILITY 2176
 1996.00 1997.00
SGR disregarding SGR disregarding STI
Sustainabilty growth Sustainabilty
STI - ( STI not - ( STI not growing
rate - SGR growth rate - SGR
growing with sales ) with sales )

5% 5% 5% 5%
3.32 4.77 3.70 5.10
2.44 6.61 2.21 4.08
42% 162% 42% 107%
100% 100% 100% 100%
 50%

408

Forcasted Sales of 1997

Projection for 1996 Projectio

Case - 2 Case - 1 Case - 2 Case - 1 Case - 2

Propotionate Propotionate
Current Liability
Change in Current Change in Current
Variance Variance Fixed as per 1996
Liability wrt % of Liability wrt % of
Actual
sales as per 1995 sales as per 1996

66 -11 -11 83 83
484 107 107 887 887
820 -94 -94 1089 1089
447 -18 -18 644 644
171 -15 -15 234 234
1987 -30 -30 2936 2936
178 1 1 269 269
11 1 1 18 18
2176 -28 -28 3222 3222

-139 666 79

614 63 -148 466.00 699.00

532 124 -59 473.00 709.50
1146 187 -207 939.00 1408.50
172 0 -59 113.00 169.50
117 46 6 123.00 184.50
1436 233 -261 1175.00 1762.50

879 94 94 1381 1381

2315 2556 3144
2176 -28 -28 3222 3222

it is assumes that rep

 7944.00
Projection for 1997

Case - 3 Case - 1 Case - 2 Case - 3

Debt Repaid and

Variance Variance Variance
Buy Back

83
887
1089
644
234
2936
269
18
3222

918

699.00
709.50
1408.50
0.00
184.50
1593.00

712
2305
3222

it is assumes that repayment of long term debt and by back made from reserve and surplus