Dell

Dell Corporation

Madison Holler

Ryan Sulek

Clark Rowekamp

Steve Hartwig

Managerial Finance

November 28, 2005

Professor Bill Nalepka

Table of Contents

Introduction - Madison Holler

Horizontal Analysis - Clark Rowekamp

Ratio Analysis for 5 Years - Ryan Sulek

Analysis of Previous Two Years Income Statements and Cash Flow Statements - Madison Holler

Analysis of Balance Sheet - Steve Hartwig

Competition - Clark Rowekamp

Future - Ryan Sulek

Summary - Steve Hartwig

Conclusion - Steve Hartwig

Introduction

The purpose of this report is the thorough examination of the financial strengths and weaknesses of Dell Corporation. This company generates sales by designing computers for the specific needs of each consumer. Dell, a just-in-time manufacturer, is leading the industry in sales and profits.

Much research was conducted using online databases such as EDGAR, InfoTrac, and Lexis-Nexis Academic. Articles about Dell Corporation and its competitors were found in Business News and other magazines through the use of Lexis-Nexis and InfoTrac. Dun & Bradstreet was also utilized for industry-wide information. All numbers listed within this report are in billions unless otherwise stated.

Horizontal Analysis

Dell's year-over-year unit shipments increased 21% while industry shipments declined 1% (excluding Dell). Sales outside the U.S. accounted for approximately 34% of Dell's net revenue in fiscal 2003 (Sec.gov).

During fiscal years 2001 and 2002, Dell took on two separate actions to reduce its workforce and exit certain activities to even out its cost structure with ongoing economic and industry conditions. As part of these actions, Dell eliminated approximately 5,700 employee positions worldwide. Special charges of $105 million and $482 million related to these actions were recorded in operating expenses in the fourth quarter of fiscal 2001 and the second quarter of fiscal 2002 (Sec.gov). This was a one time expense that caused the decline in net income between the years 2001 and 2002. After these expenses were paid, net income began to increase again due to all of the savings that resulted from the two actions. Annual savings from these two programs were nearly $500 million which were realized during fiscal 2003 and 2002 in reduced selling, general and administrative expenses as a percentage of net revenue (Sec.gov). The continuing revenue growth also is a result of Dell's partnership with EMC Corporation and the Dell/EMC CX200 storage array.

Share and per share information has been restated to reflect 2-for-1 splits of the common stock in March and September 1998, and March 1999 (Sec.gov). Dell's stock split twice; this is the effect that it has on the earnings per share. The decline Dell reported in fiscal 2002 is due to the effects of September 11, 2001 on the economy (Sec.gov).

The decline in the market price of Dell's stock could be an effect of the downsizing that took place in 2002, increased uncertainty, plus the large number of expenses expected to decrease the earnings for that year. The increase in operating expenses is due to the downsizing expenses that took place.

Dell's debt ratio has been steady throughout the past 5 years with no large changes. The slow increase could be cause for concern as it is taking on more debt recently, due to financing new plants in 2004 and 2005.

Due to Dell's adoption of FIN 46, Dell began consolidating DFS's financial results at the beginning of the third quarter of fiscal 2004 (Sec.gov). The consolidation of DFS increased Dell's consolidated assets and liabilities as of October 31, 2003 by $588 million (Sec.gov).

Ratio Analysis for Previous Five Years

Current Ratio

Dell's current ratio fluctuated little over the past four years. In fiscal year end 01/25/2002 Dell's current ratio was 1.05. At this time Dell's current assets equaled $7,877,000, and its current liabilities equaled $7,519,000. The current ratio industry average for 2002 was 1.6. An evaluation of Dell's current ratio and the industry average reveals that Dell has more cash and current assets ready to be liquidated as compared to the industry average. This also shows that Dell does not have to pay back as much debt and liabilities. Dell has more current assets ($7,877,000) compared to the industry average.

Analyzing Dell's current ratio from fiscal year ends 2002 to 2003 saw a decrease from the previous year's 1.05 current ratio, to 0.99 in 2003. Both Dell's current assets and current liabilities increased slightly to $8,924,000 and $8,933,000, respectively. In fiscal year end 01/31/2003, the industry average was again at 1.6; compare this figure to Dell's current ratio of 0.99. Dell's decrease in current ratio shows us that their cash equivalents increased from $3,641,000 in 2002 to $4,323,000 in fiscal year end 01/31/2003. This indicated that Dell had highly liquid, safe investments that were easily converted into cash. Not only did their cash equivalents increase, but their short-term investments and their accounts receivable also increased in 2003. Their short-term investments showed the greatest increase in the current assets. In 2002, short-term investments were $273,000