Term Paper on "Dell Computers Evaluating Dell Inc"

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Dell Computers

Evaluating Dell Inc. As a Prospective Employer

Company Overview

Dell Inc. specializes in the sale of computer systems directly to their customers. Their Standard Industrial Classification (SIC) code is 3571: electronic computers. Companies within the manufacturing portion of this code have an SIC code from 3571-3579. This code allows them to manufacture and sell their systems directly to their consumers. When one compares their SIC classification to their actual business as listed in their 10-K, they are close. Dell states that it sells systems directly to customers. However, it does not indicate whether it manufactures them or purchases them from another manufacturer. This is not stated in the company description. However, in the Shareholder Letter it is found that many of the systems that it sells are produced by remote partners (Shareholder Letter, p. 1). It is important for the company to use the correct SIC code.

According to the letter to shareholders, Dell has achieved record growth over the past several years. It continues to reach new sales levels and break records. The CEO and Chairman of the Board are optimistic that this growth will continue into the future. They attribute their exceptional growth to an approach that focuses on the customer. Dell will continue to expand its holdings on a global basis, particularly in the Asian pacific. Dell expects to double its business in China and other emerging nations (Shareholder Letter, p. 1).

Customer experience is the pillar of Dell's strategic plan. Their ability to deliver what the customer wants when they want it is one of the key facto

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rs that has led to Dell's growth in the past and that will contribute to its continued growth in the future (Shareholder Letter, p. 4). However, Dells' philosophy means that it is never satisfied and will continue to strive for continuous improvement in the systems that they provide and in meeting customer expectations. Dell has an active recycling program that encourages customers to recycle old computers (Shareholder Letter, p. 5). They reuse the material recovered in their manufacturing processes. Dell's philosophy is centered on customer desires, and this includes attention to social responsibility.

Dell's marketing strategy remains consistent in each of their global enterprises. it's philosophy and overall business strategy is customer driven. Dell collaborates with other providers on a global basis. It selects partners based on compatibility with company philosophy and attention to the same quality that Dell customers expect (Shareholder Letter, p. 15). Dell manufactures 1/3 of its computers sold in the U.S. The rest are produced by Dell's many partners. Dells' leading selling point is their customer service centers that offer support to Dell's entire client base.

Dell systems are the backbone of many major global corporations including DuPont and FedEx. Dell specializes in consumer systems including desktops and laptops. It also provides large business solutions such as server and large capacity storage systems (Shareholder Letter, p. 17). Their systems are known for ruggedness and durability.

Business Strategy

The forefront of Dell's business strategy is its direct customer model that includes a highly efficient manufacturing system. It focuses on supply chain management and organization. Dell feels that the most effective path to the customer is a direct relationship (Annual Report, p. 1). This model allows them to eliminate the intermediaries and retail dealers. Dell customers have the privilege of dealing directly with the manufacturer. This allows them to maintain lower prices than their competitors (Annual Report, p. 1).

Dell has the opportunity to custom build units for their clients with a fast turnaround. Dell is directly accountable to its customers, rather than going through levels of the retail chain (Annual Report, p. 2). This business model allows Dell to deliver the models that customers want at a price that is competitive. When they get a Dell, they know that they can count on excellent customer service. This business strategy gives Dell its competitive advantage.

Notes to Financial Statements

Accounting practices differ among various corporate entities. It is the job of the accountant to make certain that the information is presented in such as way that it most accurately represents the company. Accounting practices must comply with the Generally Accepted Accounting Practices (GAAP). However, there is more than one way to represent this information. The "notes" section of the financial statement provides the reader a clue as to how the information was prepared and presented. This will help the reader to make a more accurate assessment of the financial information within the report.

Dell's Note1 explains the length and timing of the fiscal year, principles of consolidation, use of estimates and how investments are translated into cash equivalents (Annual Report, p. 41). This section of the statement explains how tangible assets are valued and how investment instruments are considered in the financial statements. Because Dell operates in many nations outside of the U.S., it must also explain how it accounts for fluctuations in foreign currency (Annual Report, p. 42). The reader must understand these items so that can compare them and make an informed decision. If these statements were not included then the information presented may appear to be misleading.

Basic Balance

Understanding the balance sheet gives the investor a snapshot of the company's overall health. The balance sheet alone does not tell the entire story, but is can provide a basic understanding of the overall picture. The balance statement summarizes the receivables and assets that the company owns against the liabilities and debt that it has. Assets include receivables, inventory at hand, tangible assets such as the plant and equipment, as well as any monies received as a part of short or long-term investments. Liabilities include operating expenses, taxes owed, shares outstanding, and capital needed for projects.

Dell's most significant asset is their cash and cash equivalents (Annual Report, p. 37). Their least significant are long-term receivables from financing. These ratios reflect the nature of Dell's business. They offer many financing solutions to their customers and therefore receive considerable income from financing activities. These types are reflected as cash and cash equivalents if they are three months or less (Annual Report, p. 41). Receivables from long-term financing stem from long-term financing of major system to large corporations and from leasing property and other assets.

Dells' long-term financial responsibilities include the lease of property and equipment including manufacturing facilities and office space. It retains certain commitments and agreements with suppliers. Dell has a number of commitments that may be at risk at any particular time. In order to limit risks, Dell maintains diversified offerings. Dell has an active plan for monitoring investments so that it can mitigate any risks that may arise. In some cases, Dell maintains a contract with a single supplier if it feels that it is advantageous and that the quality is superior (Annual Report, p. 56). However, for most supplies, it retains alternative sources in case one supplier cannot meet the demand. The most important aspect of this information is that it lets the reader know that the company has made allowances for supplier failure and that it practices good risk management.

Dell does have a category for "other assets." These assets were not defined within the notes of the financial statements. Their amounts were insignificant and the nature of these assets is not known. Dell's statement does contain a section entitled "other non-current liabilities" but no mention is made of these assets in the notes or narrative.

Debt Ratios

The debt ration and debt to equity ration are two of the most important indicators that can be calculated from the balance sheet. The debt ration tells the reader how much the company relies on debt to finance their assets. A high debt to equity ratio is can indicate potential volatility. However, if the debt is used to increase revenues, then the company may generate more revenues than it would have without the additional financing. Interpretation of the debt to equity ratio is highly dependent upon how the financing was used to generate revenues.

Debt Ratio

23215 =.72

23109 =.82

Debt to Equity Ratio

6485 = 2.58

4129 = 4.60

These numbers tell us that Dell has been using a considerable amount of financing in its growth. This is reasonable considering its overseas expansions. However, in this case, they are experiencing considerable growth from their ventures and continue to add new sources of income to their portfolio through these financing options.

Income Statement and Statement of Shareholder's Equity

Dell divides its business segments according to global regions. It includes data from the U.S., Asia, Europe, and South America. They also divide their segmentation into a number of products within those countries, such as desktop PCs, mobility, software and peripherals, servers and networking, enhanced services, and storage (Annual Report, p. 59). Dividing their business into various segments gives them an overall picture of what products are the most successful and where to spend more effort in the future.

According to the annual report, Dell's most important segment is their desktop PCs. This… READ MORE

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Quoted Instructions for "Dell Computers Evaluating Dell Inc" Assignment:

“

This is an annual Report Project on Dell Inc. Following is Dell*****s Annual Report (Form 10-k): Use the information in annual report to complete this project.

http://www.sec.gov/Archives/edgar/data/826083/000095013406005149/d33857e10vk.htm

a.) A statement regarding how you feel the description of the industry

pertaining to your company*****s SIC code compares to the company*****s

actual business as described in its annual report.

SIC : 3571 - Electronic Computers

b.) A summary of the president*****s (or CEO*****s) message included in your company*****s annual report. Summarize the message in your own words.

Message from CEO: http://ccbn.mobular.net/ccbn/7/1442/1583/

c) A summary of the president*****s (or CEO*****s) message included in your company*****s annual report.

A brief summary of the general information and promotional material

included in your company*****s annual report. Your summary should

include a general description of your company*****s business and a

summary of the firm*****s views on social responsibility, marketing

strategy, direction for the future, environmental issues, and so forth.

Summarize in your own words.

K) Following the presentation of the company*****s financial statements, there is a series of notes. The first note presents information about significant accounting policies. Summarize the kind of information the note includes.

L) Explain how the information in this note would help a decision

maker understand the company*****s financial statements.

Section 3 *****“ Basic Balance

A) Discuss the important items and amounts that appear on the balance sheet.

What is the company*****s most significant asset?

Which is the least significant?

Is there any reason for this?

C) If your company has long-term debt summarizes the pertinent facts relating to the debt.

D) Does your company have any contingent liabilities?

If it does, provide a brief description of each.

Describe why this information is important.

E) Does the balance sheet include categories called something similar to *****other assets*****?

If it does, use information from the notes to the financial statement to describe the items in this category.

F) Does the balance sheet include categories called something similar to *****other liabilities*****?

If it does, use information from the notes to the financial statement to describe the items in this category.

G) Prepare a schedule for your company that presents the following financial ratios: Debt ratio for two years and Debt-to-equity ratio for two years

H) Comments regarding the changes in the amounts of ratios over time. Is the proportion of the debt financing increasing or decreasing? Comment on your company*****s external financing including the relative proportions of liabilities and equity.

Section 4 *****“ Basic Income Statement and Statement of Stockholders***** Equity

A) Companies are required to provide information on the various segments of their businesses. Describe your company*****s business segments.

Describe the types of information your company*****s annual report includes for its various business segments.

Indicate which segment you think contributes the most toward the success of your company.

Explain your reasoning.

Indicate which segment you think contributes the least. Explain your reasoning.

Does the business segment information hint that company should consider changing its business strategy or focus?

Explain your reasoning.

B) Describe your company*****s income statement presentation and the important information it includes. For example, how many years of income statement information does your Company present?

Does your Company use the single-step or multi-step income statement format?

Do you think there is any reason your Company might use one format rather than the other?

Which format would you prefer your company to use?

Explain your reasoning.

Discuss the important items and amounts that appear on the income statement.

Is there a category on the income statement called something similar to *****other income*****?

C) Describe your Company statement of stockholders***** equity presentation. For example, how many years does your Company present?

Did your Company issue stock during the year?

Provide an explanation.

What item seems to cause the most significant changes in stockholders equity?

Your report should mention the number of common shares of stock authorized and the number outstanding, the number of preferred shares of stock authorized (if any) and the number outstanding.

If your Company has treasury stock, list the number of treasury shares presented and describe why you think the Company reacquired its own stock.

D) Prepare a schedule that presents the following financial ratios:

ï‚§ Gross Profit margin ratios for three years

ï‚§ Net profit margin ratios for three years

ï‚§ Return on assets ratio for the latest year

ï‚§ Return on common equity ratio for the latest year

ï‚§ Dividend payout ratio for three years

ï‚§ Earnings per share for three years

ï‚§ Price to earnings ratio for the latest year

E) Comment in your report on the information that each one of the ratios provides. Where applicable, comment on the changes in the amounts of ratios over time.

F) Your report should conclude with a summary of your impressions of the company in light of what you discovered as you completed this assignment.

Section 6 *****“ Finding a Peer Company and Peer Company Comparisons

A) Select a peer Company. (Apple Computer Inc. for this Project)

http://sec.gov/Archives/edgar/data/320193/000110465906084288/a06-25759_210k.htm

C) Prepare a report that compares the following ratios for your Company with those of the peer Company you selected.

*****¢ Debt ratio for two years

*****¢ Debt-to-equity ratio for two years

*****¢ Gross profit margin ratios for three years

*****¢ Net Profit margin ratios for three years

*****¢ Rate of return on assets ratio for the latest year

*****¢ Rate of return on common equity ratio for the latest year

*****¢ Dividend payout ratio for three years

*****¢ Earnings per share for three years

*****¢ Price-to-earnings ratio for the latest year

D) Comment in your report on the information that the comparison of each one of the ratios provided.

How does your company compare to its Peer?

And where applicable comment on how you company has performed over time relative to the peer company you selected.

E) Your report should conclude with comments regarding what you think of your company and how you think your company compares to its peer in light of the work you did in connection with this assignment.

Section 7 - Long-Lived Assets

A) A schedule that presents and compares the property, plant, and equip. of your company and the peer Company you selected for the assignment for Sect. 6. For example, include a presentation of each Company*****s property, plant and equip. for the two years listed in the financial reports

Also, present the total of accumulated depreciation associated with property, plant, and equipment for each Company for each year.

Youcan find information about property, plant, and equipment and depreciation in the balance sheet and the notes to the financial statements.

B) Identify the method or methods of depreciation used by the two companies.

In addition, comment on the significance of any similarities or differences

between the depreciation methods used by the two Company

D) A schedule that presents and compares the intangible assets of your Company and the peer company you selected

Comment on the intangible assets of each Company For example, which is most significant?

Has either Company recognized any sizable loses due to the impaired value of intangible asset?

If so, read the notes to the financial statements and fully explain the circumstances relating to the loss.

For example, did the loss related to a new accounting pronouncement? Does the Company comment on whether it is likely that such a loss will occur again in the future?

Section 8 *****“ Inventories and Cost of Goods Sold

C) Identify the inventory cost flow assumption or assumptions used by your company and those used by its peer.

List the cost of goods sold and the gross profit for the two companies.

Does the inventory cost flow assumption seem to have created any difference between your company and its peer company?

If one or both of the companies uses the LIFO inventory cost flow assumption, locate the financial statement note that relates to inventories and use the information it contains to prepare a schedule listing the LIFO inventory values, the inventory amounts had the inventories been valued under FIFO ,and the difference between the LIFO and FIFO inventory values.

D) Calculate the inventory turnover ratio for your company and its peer for the current year.

Comment on the information the ratio calculations provide.

E) Discuss which company seems to be using its investment in inventory more efficiently?

Explain your reasoning

F) Your report should conclude with comments regarding what you think of your company and how you think your company compares to its peer in light of the work you did in connection with this assignment.

Section 9 *****“ Financial Statements *****“ A Closer Look

A) List your company*****s major asset classifications

B) Describe how your company*****s asset classifications compare to those of its peer.

D) List your company*****s major liability Classifications. Liabilities and shareholders***** equity.

E) Describe how your company*****s liabilities compare to those of its peer.

G) Does your company or the peer company you are using include any nonrecurring items on its income statement? In other words, do the income statements include any discontinued operations, extraordinary items or cumulative effect of accounting changes?

Are there items or events mentioned by either your company or its peer*****s financial reports or that you happen to know about that you feel should give rise to nonrecurring item, but did not? An example of such a situation would be when a company*****s annual report mentions major losses due to the massive freight delays in connection with the Longshoreman labor strike that occurred in 2002, and yet does not list the loss as extraordinary.

H. A schedule that includes the following ratios for your company with those of the peer company you selected:

*****¢ Basic earnings per share for three years (use the amounts from the income statements)

*****¢ Diluted earnings per share for three years (use the amounts from the income statements)

*****¢ Asset turnover ratio for the current year

*****¢ Receivables turnover ratio for the current year

*****¢ Current ratio for two years

*****¢ Quick ratio for two years

*****¢ Times interest earned for three years

I) Comment in your report on the information that each one of the ratios provides. How does your company compare to its peer? And where applicable, comment on how your company has performed over time relative to the peer company you selected.

J) Your report should conclude with comments regarding what you think of your company and how you think your company compares to its peer in light of the work you did in connection with this assignment.

Section 10 *****“ The Statement of Cash Flows

B) Examine the operating cash flows. Have the operating cash flows been positive?

Have the operating cash flows increased or decreased in the years presented?

Are the operating cash flows sufficient to pay principal and interest on debt and meet other cash requirements?

What method is used to prepare the operating activities section of the statement of cash flows, direct or indirect?

C) Examine investing cash flows. For each line presented in the investing section, discuss how it impacts the other financial statements and other parts of the annual report.

D) Examine the financing cash flows. For each line presented in the investing section, discuss how it impacts the other financial statements and other parts of the annual report.

Section 11 *****“ Summary, Conclusions, and Recommendations

Based on the ratios you prepared and your review of your annual report project, prepare a report that summarizes what you have learned about your company. Your report should include a section with your overall conclusion. Be sure to mention your company*****s strengths, weaknesses, opportunities, and threats.

What is your opinion regarding whether your company is a good investment candidate?

Based on what you have learned about the company, do you think the company would be a good prospect for employment?

*****

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