Matching Dell Case Commentary by C3 ‘Nathan Lyons-Smith, Brilliant Manyere, Bill Green 11/18/2009Contents Executive Summary. Background Problem... Financial Analysis Market Pricing Analysis. ‘Segment Analysis, Deli’s Competitive Advantage... Conclusion 9 Appendix 1 - FY 1998 Inventory Turnover and Days in Inventory Ratio AnalYSiS...nnnneseseeiees 10 Appendix 2 ~ Profit Margin Ratio Analysis. 10 Appendix 3 - Average Monthly Rate of Change of Dell Stock 1996 - 1999 10 ‘Appendix 4 —FY 1996 Competitive Advantage Analysis. ed Appendix 5 - FY 1998 Competitive Advantage Analysis. 12 ‘Appendix 6 ~ SWOT Analysis of Dell. w3 Appendix 7 — Dell DuPont Analysis 14 Appendix 8 ~ Dell Market Value Analysis. oS Appendix 9 — Dell Income Statement 16 Appendix 10 - Dell Balance Sheet ..... wel Appendix 11 ~ Dell Sources and Uses Statement 18 Appendix 12 - Selected Financial Statements as a Percentage of SaleS ..-.cccnnnnnneensesnnnnes 1B Appendix 13 ~ Calculation of Beta 19 Appendix 14 — Calculation of Discount Rate. 20 ‘Appendix 15 ~ S&P 500 Returns oe Appendix 16 ~ Dell Monthly Stack Price. 22 Appendix 17 ~ Beta Estimation of Dell Computer. 23Executive Summary Dell has been incredibly profitable and experienced astounding growth over the last several years. We are now in 1999 and we must decide if we should buy, sell, or hold Dell stock. Strategically, Dell has run the table on the market. They have capitalized on a new business model and forged their profits in an industry with very slim profit margins. They benefitted greatly from the expansion of computer use in the late 90s, the explosion of the internet, and the health of the economy. Dell's competitive advantages come from: 1.__Just In Time (JIT) purchasing of components (avoiding falling prices) 2. Lower inventory costs (avoiding carrying and inventory costs based on cost of capital) 3. Distribution channel related costs and markups (which increases prices to the customer) Dell’s startup mentality and lean business operations have made it a great company. Their inventory turnover ratio is around 52 and they keep their inventory for an average of only 7 days. These are astounding figures for any company and Dell will have to work very hard to leverage JIT and their distributor network to ensure they remain at this level. Now, the market for new computers has slowed down because everyone has one. Dell has fewer growth options and its stock likely will not continue to grow at the same rate. Additionally, profits continue to remain razor thin, new companies can enter easily, and Dell must continue to run its operations tightly if they wish to continue making a profit. Dell has traditionally targeted its products to a small number of segments, Future success for Dell will involve breaking into new segments that are controlled by its competitors, IBM and HP. Financially, Dell is in a very good position. After collecting relevant data, we conclude that the estimated value of Dell stock is $46.83 per share. Dell has traditionally not paid dividends for a reason. Our opinion is that the company’s earnings will stabilize in 2004, Long term investors of stocks are encouraged to accumulate the company stock and hold for about four years