FINANCIAL ANALYSIS OF DELL AND HP Executive Summary

This financial analysis report examines two high profile competitors, Dell and Hewlett Packard (HP), within the computer/technology industry in order to evaluate company performance and financial health. Overall company strategies were reviewed and considered along with the financial analysis to come to a conclusion for recommendation of investment. The reports introduction gives an overview to the computer/technology industry and expands on the strategies executed by Dell and HP. The financial analysis covers both companies common-size
income statements and balance sheets, comparative income statements and balance sheets, and various financial statement ratios such as liquidity, capital structure and solvency, return on investment, operating performance, asset utilization and market measures from year 2006 to year 2010. A pro forma look ahead estimated financial performance is generated for each company and assumptions explored that helped derive the financial data for the pro forma. Conclusions are drawn from the above stated financial analysis as well as areas for improvement and investment recommendations. Dell and HP are both well known companies competing in an ever evolving and expanding industry. The industry is in every segment from personal to educational to professional. HP is a more mature company having been founded in 1939, but Dell made waves throughout not only the computer/technology industry but in multiple industries for its ability to rethink distribution and customized sales direct to customers. While both companies offer both products and services, HP has a slightly more diverse portfolio and is a bit more brand recognized as a trusted and quality company. From years 2006-2010, Dell was able to keep downward pressure on the growth of cost of goods sold while HP had strong growth in their sales and net profit. Through this time span, Dell secured a lower liquidity risk for its shareholders when compared to HP. The marginal operating performance on average for HP was stronger than Dells operating performance. Only HP is a dividend generating stock with Dell choosing to not participate in this option for its investors. Dells approach is that instead of paying out a dividend, those funds are used to reinvest into the company to produce higher profits and overall create a stronger more financially fit company. Both strategies work to entice investors as both companies are doing well in the market. HP higher sales revenue and dividends paid out along with a strong and reputable brand name make it an attractive investment but Dells revolutionary process thinking along with its growth potentials, recent strategic acquisitions, low liquidity risk, and good return on investment makes a good case for potential investors to pursue.

FINANCIAL ANALYSIS OF DELL AND HP Table of Contents

Introduction4 Computer/Technology Industry..4 Dell vs. HP Strategies..4 Objectives4 Financial Analysis..5 Common-Size Analysis...5 Common-Size Income Statement Analysis.5 Common-Size Balance Sheet Analysis6 Comparative Analysis..7 Comparative Income Statement Analysis7 Comparative Balance Sheet Analysis..8 Financial Ratio Analysis..9 Liquidity...9 Capital Structure and Solvency..10 Return on Investment 10 Operating Performance..10 Asset Utilization.11 Market Measures12 Summary of Financial Performance & Suggestions for Improvement..12 Projected GAAP Income Statements and Balance Sheets and Assumptions Used.......13 Conclusions and Recommendation for Investment..15 References.16 Appendices17

FINANCIAL ANALYSIS OF DELL AND HP Introduction Computer/Technology Industry The computer/technology industry has many key players with two of the major competitors being Dell and HP. The computer industry has come a long way since its first inception with the invention of Electronic Numerical Integrator and Computer in 1946. This industry is comprised of many items such as computers, monitors, printers, scanners, mainframes, servers, electronic computer components, networking and workstations to name a

few. The industry started a major growth phase in the 1980s with the production of the personal computer and has grown every since with many new products introduced. Innovations within this industry have had positive rippling effects to outside industries, from manufacturing to banking. While the United States market is fairly saturated and mature, the computer/technology industry is very much in the growth phase on a global basis. The drivers behind this growth are both innovations in technology and especially increased consumer spending in Asia and Africa. The international value of this industry is expected to grow and surpass $620 billion in 2011, roughly a 27% increase from 2006. Dell and HP possess major market share within the computer/technology industry due to brand name loyalty, advanced supply chain management techniques and producing innovating products for an affordable price.

Dell vs. HP Strategies Dell and HP operate in a competitive environment to gain market share at segmented price intervals. Over the last decade we have seen the price of the average computer go from close to $2,000 to less than $1,000. In part, pressures to add customers have lead to price wars between the two competitors. However, the price wars have not affected the quality of the products in those lower priced tiers. Both firms have increased marketing efforts to enhance their brand recognition and strived to reduce cost through improved supply chain management and technology innovation. Both companies have room for growth, especially as they enter the portable tablet market. It will also be interesting to see how HP fairs in the cell phone market with its recent acquisition of the company Palm and how Dell with react to their success or failure within this market segment.

Objectives

FINANCIAL ANALYSIS OF DELL AND HP The primary objectives for this financial analyst report are to compare two major companies within the computer/technology industry, Dell and HP. Suggestions for company improvement will be discussed as well as recommendations for investment. A pro forma financial analysis for each companys expected performance for 2011 will be conducted and

assumptions that lead to these figures. The companys performance will cover the years spanning from 2006 through 2010, with analysis of each companys common-size income statement, common-size balance sheet, comparative income statement, comparative balance sheet and financial statement ratios.

Financial Analysis Common-Size Analysis Common-Size Income Statement Analysis The common-size income statement for Dell shows a relatively flat history for cost of goods sold compared to sales from 82.27% in 2006 to 82.49% in 2010. Dells five year average for cost of goods sold to sales was 82.23%, which is bit higher than HP cost of goods sold to sales five year average of 75.96%. This in turn gives HP higher gross revenue than Dell most likely through means of obtaining raw materials and goods at lower costs, giving HP greater ability for an increased profit margin. This increased profit margin can allow for HP to offer more discounts then Dell may be able to afford, or increase spending in areas of investment for the company. Another area of interest within the common size income statement is related to selling, general and administrative to sales. Overall through the years 2006 to 2010, Dell saw an increase in this area growing from 9.05% in 2006 to 12.22% in 2010. Meanwhile, HP experienced the exact opposite effect, with this category declining from 12.29% in 2006 to 9.99% in 2010. According to Dells annual report, the major increase was due to the acquisition of Perot Systems. It also appears that over the last five years, Dells strategy of products directly to customers has been adopted by many competitors, allowing the competitors to decrease some of their overhead and commissions paid to retailers, all the while increasing sales. In the same time span as competitors partially adopted the strategy that made Dell prominent, Dell began to place more products in retail stores to compete directly on the front lines with its competition, as mentioned in their Managements Discussion and Financial Analysis meetings. This approach

FINANCIAL ANALYSIS OF DELL AND HP has caused a good percentage of the sales revenue to go to retailers and distributors, thus straining the ability to maximize net income for the present. Research, development and engineering for Dell as a percentage to sales were 0.82% in 2006 and slightly grew to 1.18% in 2010. HP research, development and engineering to sales is roughly 3 times the amount that Dell dedicated; however, HP has drawdown their research, development and engineering to sales from 3.92% in 2006 to 2.35% in 2010. The five year average in this category for Dell was 0.99% and HP was 3.04%. Even with HPs much higher research, development and engineering to sales percentage than Dell, HP has a higher operating expense, but since their cost of goods sold to sales is lower, it gives HP the edge in producing a higher operating income than Dell. Overall net income to sales decreased for Dell throughout 2006 to 2010, with a major decrease happening in 2010 and overall having a five year average of 4.51%. In 2006 the net income to sales was 6.46%, then in 2009 it dropped to 4.06%, but in 2010 was when the major

drop happened, resulting in net income being just 2.71%. The main contributor to the drop in net income to sales was from operating expenses, with one component being the increase in research, development and engineering, but the primary increase coming from the selling, general and administrative category. Increased operating expenses are reflective of Dells push of broadly branching out into the retail market. HPs net income to sales remained flat during the same time span, with a five year average of 6.88%. The basically net zero increase in net income can be attributed to the economic downturn, and its rippling effect on customers.

Common-Size Balance Sheet Analysis The common-size balance sheet of Dell reflects a current assets to total assets five year average of 74.91% and shows a short term liabilities to total liabilities and shareholders equity five year average of 63.72% covering years 2006 to 2010. Dells current assets and current liabilities both decreased from 2006 to 2010, but their current liabilities decreased at a faster rate than their current assets did. The gap between the two in 2006 was roughly 7% and had increased to 16% by 2010, providing plenty of opportunity to grow and develop the company further in their plans. HP common size balance sheet represents a different story. Their a current assets to total assets five year average was 49.45% and short term liabilities to total liabilities and shareholders equity five year average was 42.37% across years 2006 to 2010. Both accounts

FINANCIAL ANALYSIS OF DELL AND HP decreased slightly over the years, and by 2010, HP had a gap of current assets to current

liabilities of only 4%. Potential investors will focus on this close margin because HP may start to become too heavily leveraged, which could hinder their ability to expand. It could also pose the problem of decreasing the percentage amount that HP reinvests back into the company, due to using assets to pay off short term liabilities. Within Dells current assets, short term investments to total assets decreased from 8.67% in 2006 to 1.11% in 2010. Many of these short term investments had matured and were sold. The additional cash on hand helped decrease accounts payable, which decreased from 42.44% in 2006 to 33.80% in 2010. Reducing its liabilities strengthens Dell financial health, yet further liquidity and asset utilization ratio test should be conducted to determine if their more solid financial standing is long term or simple a one year over year change. Dells inventory to total assets remained mainly the same over the five year span with 2.53% in 2006 and 3.12% in 2010. This is a reflection Dells strategy of keeping on hand inventory levels low and only producing the amount able to quickly sell. HP inventory to total assets changed substantially from 9.45% in 2006 to 5.19% in 2010. The drop in inventory percentage to total assets is a representation of HP improved strategy to minimize holding periods by taking delivery of inventory and manufacturing immediately prior to sale or distribution of product to customers. It is also reflective of the aggressive discounting that HP conducted as a result of the economic downturn. Dells long term debt to total liabilities and shareholders equity increased substantially from 2.69% in 2006 to 10.15% in 2010 with average long term debt of 4.71%. The major increased indicates that the company was dependant on long term debt to finance its acquisition of Perot Systems in 2010. HP long term debt to total liabilities and shareholders equity followed the same path by increasing from 3.04% in 2006 to 12.26% in 2010. This increased in total debt is explained in their annual report as being spending on acquisitions and share repurchases. Debt to equity ratios are needed to be further evaluated to determine the risk factor for this increased level of liabilities. Comparative Analysis Comparative Income Statement Analysis Dells net revenue sharply declined from 2008 to 2010, going from 6.47% to (13.42%), as a result of the economic downturn, as individual customers put off luxury purchases such as computers and commercial customers put off bulk computer orders for a later to be determined

FINANCIAL ANALYSIS OF DELL AND HP date. On average, the net revenue growth was 1.86% while cost of goods sold was 2.05%. Cost

of goods sold increased faster than sales, lowering its potential gross profit. Even though selling, general, and administrative was reduced substantially from 2008 level of 26.73% down to (8.97%) in 2010, its growth rate averaged 9.45%, which outpaced net revenue on average. The drop in selling general and administrative was due to decreases in compensation, advertising expenses and improved controls during the downturn. The growth rate of cost of goods coupled with the economic downturn, found Dell with a (31.91%) operating income for year 2010. A large decrease in the market yield of over 200 basis points from 2009 was the cause for the (210.45%) for investments and other income n 2010. Net income average was (10.78%) over years 2006 to 2010, with major causes for this being lower sales due to economic downturn, decreases in investments, increases in tax liabilities and higher cost of a hedging program. Much like with Dell, the economic fallout had its effects on HP. Their net revenue severely decreased from 13.50% in 2008 to (3.22%) in 2009. The dollar depreciation to the euro played a large part in this drop for its European sales. However, unlike Dell, HP rebounded in 2010, increasing sales up to 10.02%, which can be attributed mostly in part to HPs acquisition of EDS. HPs annual cost of goods averaged 7.84%, which was lower than their net revenue average of 7.96%. This led to a more favorable net income on average, indicating HPs ability to better control its operating income through successful marketing or more effective investment approaches over the years.

Comparative Balance Sheet Analysis Dells five year average total current assets growth rate was 7.75%, which was higher by a slim margin over average total current liabilities of 7.27%. The relationship was consistent with the common size analysis giving support to Dells capability to cover short term liabilities with current assets. However, caution should be raised and solvency ratios further investigated as Dells current assets dipped below its current liabilities in 2010 by a comparison of 20.32% to 27.60%. Its competitor HP current liabilities growth rate average is out pacing its current assets growth by almost double with rates of 10.88% to 4.68%, respectively. This should bring caution to HP to get control of its short term liabilities growth rate, but not be too alarming, considering that by its common-size comparison, the company presently has enough current assets to pay for its short term liabilities.

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Dells accounts receivable rate of growth was 11.90% on average, growing faster than the companys average sales rate, 1.86%. This relates to the increase in the collection period in days also increasing over this five year span. The category of property, plant and equipment grew for Dell at an annual rate of 6.12%, with the majority of this growth happening in years 2006-2008. Plant, property and equipment declined in years 2009-2010, (14.66%) and (4.22%) respectively, which coincides with the companys declining sales growth over these same years. On average, Dells total liabilities grew 11.36% annually, compared to its total liabilities and shareholders equity growth rate average of 8.21%. This highlights the companys candidacy for potentially becoming a long-term solvency risk.

Financial Ratio Analysis Liquidity Current Ratio and Acid Test Ratio Average current ratio for Dell was 1.19 and the acid test ratio was 1.14. These averages are better in comparison to HPs current ratio of 1.17 and acid test ratio of 1.00, which tells that Dell has more current assets to cover its short term liabilities and makes Dell a safer and more financially strong company. HP had a risky year in 2008 when its current ratio fell below 1.00, ending at 0.98, but shouldnt be focused on too much considering that their net revenue in sales averages 7.96% growth rate and is averaging a 39.33% net income growth rate. Collection Period Dells ability to collect customers payments on accounts receivable is stronger than HPs, with Dell taking 32.04 days on average compared to HPs 49.74 days. While both companies collection period was longer than the normal business benchmark of 30 days, Dell was much more successful in collection from its customers and thus reduced the liability for risky accounts receivable. The shorter period for collection also enables Dell to pay for its inventory and not have to expose them to greater amounts of short term debt through increased working capital financing. Days to Sell Inventory Dell inventory holding period was much shorter than HP, with Dell having days to sell inventory ratio of 6.70 on average and HP having an average ratio of 32.02. Dell operates in a

FINANCIAL ANALYSIS OF DELL AND HP slightly leaner production manner than HP and is able to quickly move inventory through its

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distribution networks. The quicker a company is able to sell its inventories, the quicker the clock begins to receive payment to be able to pay back money owed on inventories acquired and sold, and not have to increase your working capital financing. Capital Structure and Solvency Debts to Equity Ratios Dells five year average of total debt to equity was 5.23, compared to HP lower average ratio of 1.65. This shows that Dell had more debt (creditors) financing than equity (shareholders) financing. Long term debt for to equity on average for Dell was 0.29 and HP was 0.22. While many feel that debt from creditors is more harmful because of the interest paid on the principle borrowed, the advantage here is that once the creditor is paid back, they are gone and off the payroll. Whereas equity financing involves more shareholders owning parts of the company, which reduces the dividend payout per shareholder as well as waters down earnings per share. Dells approach to being more heavily financed through debt than equity may be in an attempt to keep earnings per share at an increased level. Return on Investment Return on Assets and Return on Common Equity An important ratio is the return on assets ratio for its ability to measure earnings per dollar from its assets. The five year average for return on assets of Dell was 13.06% while HPs was 9.07%. This higher percentage for Dell reflects a more efficient use of its assets and higher earnings from products sold per company asset. Both companies have strong return on assets that goes to show the loyal base of customers each brand name of the two companies has. Return on common equity is another important profitability ratio. This ratio measures the earnings success of its capital investments through common shareholders. The return on equity for Dell averaged 81.46% while HP averaged 23.91. An observation of this profitability measure shows that Dell is possibly much more attractive for potential investors for its ability to effectively manage and use funds generated through shareholders equity. Operating Performance Profit Margin Ratios Dells gross profit margin average of 17.77% was lower than HPs average of 24.04% HP controls a larger portion of the computer market as represented through this ratio. Dell also

FINANCIAL ANALYSIS OF DELL AND HP posted lower operating profit margins and pretax profit margin compared to HP. Dells higher selling, general and administrative expenses are cause for lower operating and pretax profit

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margins, partly due to new retail and certain global distribution relationships. As expected from the precursors above, net income was also lower for Dell when compared to HP. Dell needs to encroach more forcefully into HPs large market share to positively influence its sales. Operating expense components should be addressed as well to find cost savings measures to increase operation income in order to ultimately increase its net income. Asset Utilization Cash Turnover The measure of how efficient a company utilizes its cash and cash equivalents to create sales revenue is depicted with the cash turnover ratio. In respect to this ratio, Dell averaged 5.60, while HP averaged 7.09. This showed that HP used its cash and cash equivalents more efficiently to build revenue. On the other hand, it shows that HP used its cash and cash equivalents while Dell refrained from using its cash and cash equivalents, as evident in the common size analysis, showing that Dell retained on average 31.77% of cash and cash equivalents to assets while HP averaged 12.41%. Inventory Turnover Inventory turnover represents how fast companies turn their inventories into sales revenue. Dell had a much slower inventory turnover on average, 58.38, than HPs 11.86. Over the past five years more companies have became better at the Dell model of sales direct to customers which has overall effected Dells sales as evident in the comparative analysis showing on average Dell grew sales by 1.86% while HP grew at 7.96%. Also, HP has become more efficient in their inventory distribution cycle and the amount of inventories held in relation to total assets, dropping from 9.45% in 2006 to 5.19 by 2010. Dells turnover ratio was directly affected by its increase in inventory to total assets growing from 2.53% in 2006 to 3.12 % by 2010. The increase in Dells inventories to total assets percentage coupled with declining sales growth over the past five years was a cause for their much higher inventory turnover rate. Total Assets Turnover Total assets turnover measures how efficiently a company utilizes total assets to create sales revenue. On average, Dells ability to generate more profit from its assets was roughly

FINANCIAL ANALYSIS OF DELL AND HP double that of HP, being 2.15 to 1.07 respectively. This shows that for overall assets held, Dell had a better record of generating sales. Market Measures Price to Earnings Ratio and Earnings Yield The price to earnings for Dell on average was 16.35, lower than HPs 18.52. From this statistical ratio, HP is able to show that its investors have higher expectations of their company performance by being committed to paying a higher price per share to own HP stock over the

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past five year time span. However, with Dell showing better results when it came to liquidation and return on investment, they are able to portray to potential investors that they are the better buy at a lower price per share when compared to HP. Earnings yield represents the amount of earnings generated for every dollar invested. Here, Dell has a better showing on average with 7.02% compared to HPs 6.25%. This ratio can be another point of persuasion that Dell is the better buy for it being properly priced when talking of earnings yield over the years 2006 to 2010.

Summary of Financial Performance and Suggestions for Improvement Both Dell and HP have the financial statistics showing why they are strong competitors in an ever evolving industry. In an industry that attracts potential customers by offering the latest, fastest and greatest products, Dell needs an increase their amount of research, development, and engineering to sales percentage. Dell can no longer rely on just offering cheaper products because offering the newest technology and quality of product has moved to the forefront of consumers minds. It would be wise for Dell to focus on precise areas where they have a strong competency and not try to be all things to everyone. One area they may rethink of pushing into is their expanded exposure into retail stores. Considering that Dell is fairly new to the retailing segment, their ties to the retailing market are not as strong as many of its competitors who have long withstanding relationships with retailers. These long withstanding relationships with retailers give companies like HP an advantage over new comers to retail stores, such as Dell, and possible over the next year or so, Dell should rethink this new part of their strategy. At the moment, the amount of increased funds used on selling, general and administrative has not equally translated into higher sales revenue.

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Dells liquidity and return on investment ratios are quite strong, but need to improve their operating performance. Integrating work processes and striving to become more efficient as well as develop strong relationships with raw material vendors will be key to increasing this area of interest. If they are able to increase their profit margins within their operating performance, it will give a higher net income and possibly increase asset utilization. Improvement from these areas could give Dell the option to increasing price per share and earnings yield from their already healthy positions. HPs area of improvement is with its collection period. Currently, the collection period is too long and is causing HP to use its working capital funds to pay for its inventories sold that they have yet to collect payment on. The days to sell inventory should be addressed as well, either reduce inventory produced are enhance buyer incentives for HP products even further than current level to move the products more quickly off the shelves.

Projected GAAP and Assumptions Used The pro forma financials for 2011 of each company have been projected and provided. This GAAP pro forma is a future look ahead at the projected financial performance and the assumptions used to develop. Each companys performance in categories from year 2009 to 2010 was strongly reviewed as well as the five year average of the comparative and common size analysis for both the income statement and balance sheet. The pro forma income statement for Dell is projecting an increase in sales, largely attributed from an improving economy but also from their acquisition of Perot Systems and expanding into the technology services area. Selling, general and administrative will have a minor increase explained through the increased volume of sales. Dell should continue to work out strategic alliances to put downward pressures on this area. Research, development and engineering will increase as Dell works to increase their ability to compete with other major competitors to bring ahead of the curve innovation to the market for consumers. Net income will increase with projected sales volume up, largely credited to an improving economy and consumers spending again. Overall, the income statement followed Dells five year average growth with minor adjustments to areas to offset the down years of 2009-2010 largely due to the poor economy. Dells pro forma was in line with their comparative growth and common-size percentages to sales.

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HP pro forma income statement in many areas are similar to that of Dells, again largely attributed to the fact that the economy is exiting one of the worst recessions in decades. Sales increased with companies beginning to purchase to update their business use products, which also increases your cost of goods sold. Purchased intangible assets and restructuring charges increased within operating expenses largely due to the acquisition of Palm a year earlier. Overall net income increased with help from added tax provisions provided through government incentives to help the economy recover as well as lower sour investments declines in what is hopefully the last year impact from the recession. The comparative and common size analyses were also used as baselines for the pro forma development. Dells pro forma balance sheet shows an increase in cash and cash equivalents from the previous year, partly due to the large premium they paid for Perot Systems in 2009. Cash and cash equivalents has been increasing since the acquisition was complete to stay firm in being able to cover their short term liabilities. Increased sales in 2011 lead to an increase in accounts receivables as it did to a slight increase in Dells inventories. Property, plant and equipment also increased as the economy begins to enter pre-recessionary times and sales increase. Purchased intangible assets had a major increase largely due to recognizing the assets from finalizing the acquisition of Perot Systems. Dells increase in inventories and an increase in accounts receivable lead to the increase in accounts payable for their current liabilities. Overall their long term debt increased as Dell prefers financing over issuing shareholders equity to fund long term projects. Overall the balance sheet of Dell increased from the previous year in large part due to increased sales and an improved economy. HPs pro forma balance sheet reflects a decrease in cash and cash equivalents that can be explained from their purchase of the Palm Company in 2010. HPs increased sales volume lead to an increase in accounts receivable and inventories stock as well as to their expansion of their property, plant and equipment assets. Purchased intangible assets increased as a result of their acquisition of the Palm Company. Increased accounts receivable and inventories lead to an increase in accounts payable. The improved economy generated more sales and HP added to their workforce causing for an increase in their employee compensation and benefits. Long term debt increased as results of recent acquisitions of EDS and Palm Company over the past three years. Overall the balance sheet of HP increased from the previous year in large part due to increased sales and an improved economy.

FINANCIAL ANALYSIS OF DELL AND HP Conclusion and Recommendation for Investment

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Both companies had their share setbacks due to the economic recession that started in 2008. The recession predominantly affected the areas of sales and investments the most. However, the downturn did highlight the ability to acquire other companies and their assets to broaden and expand each companys market reach within industry. One of the better ways to determine a companys direction financially is to look at the last few years of their performance and see where they physically placed their priorities. Dells growth strategy involves reaching more customers worldwide through new distribution channels, such as consumer retail, expanding their relationships with value-added resellers, and augmenting select areas of their business through targeted acquisitions. Dells sales will continue at a larger rate than they did in the pro forma 2011 due to more focus being able to be directed at increasing traditional sales as well as the technology services sector instead of laboring over the restructuring from the acquisition, as they had to focus on over the last two years. Also, to improve net income Dell should continue to work out strategic alliances to put downward pressures on cost of goods sold and selling, general and administrative costs. Dell had lower liquidity risks when compared to HP and good return on investments, which weigh heavily into an investors decision. HP owns a larger market share than Dell due to enhanced product and services diversification. With HPs larger brand name and recent acquisitions over the last several years makes them an interesting investment. Their price per share is believed to be undervalued and a good buy for such a prominent company, and their expanding market exposure into the tablet and possibly cell phone industry could increase their market share even more. There is also the dividend factor with HP stock, which creates a built in incentive for potential investors. Currently Dell does not participate in distributing dividends to its shareholders. HP has had substantial gains in the market through diversification of sales and services offered. Also, HP appears to have a better management of their operating expenses, which allows for them to post better net incomes. Both companies are strong and healthy investments for potential investors. After reviewing their company strategies and recent years financial statements and ratios, it is believed that HP would be a better investment with its larger diversification, brand name, lower operating expenses, larger net incomes, higher sales volumes and better growth potential in the long run.

FINANCIAL ANALYSIS OF DELL AND HP References

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Wahlen, J., Baginski, S., and Bradshaw, M. (2010). Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective. 7th ed., South-Western College Pub Investopedia (n.d.). Retrieved from http:// www.investopedia.com Yahoo! Finance (n.d.). Retrieved from http://finance.yahoo.com Yahoo! industry center (n.d.). Retrieved from http://biz.yahoo.com/ic Google Finance (n.d.). Retrieved from http://www.google.com/finance Dell, Inc. and Subsidiaries. (Jan 2010). Form 10-K. Dell, Inc. and Subsidiaries. (Jan 2009). Form 10-K. Dell, Inc. and Subsidiaries. (Jan 2008). Form 10-K. Dell, Inc. and Subsidiaries. (Jan 2007). Form 10-K. Dell, Inc. and Subsidiaries. (Jan 2006). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2010). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2009). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2008). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2007). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2006). Form 10-K.

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Appendices Table 1. Dell Common-Size Balance Sheet

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Table 2. Dell Common-Size Statement of Income

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Table 3. Dell Comparative Balance Sheet

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Table 4. Dell Comparative Statement of Income

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Table 5. Dell Financial Statement Ratios

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Table 6. Dell Pro Forma Balance Sheet

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Table 7. Dell Pro Forma Statement of Income

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Table 8. HP Common-Size Balance Sheet

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Table 9. HP Common-Size Statement of Income

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Table 10. HP Comparative Balance Sheet

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Table 11. HP Comparative Statement of Income

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Table 12. HP Financial Statement Ratios

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Table 13. HP Pro Forma Balance Sheet

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Table 14. HP Pro Forma Statement of Income

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