Background

Dell Computer Corporation was founded in 1984 by then nineteenyear-old Michael Dell. The company designed, manufactured, sold and
serviced high performance personal computers (PCs) compatible with
industry standards. Initially, the company purchased IBM compatible
personal computers, upgraded them, then sold the upgraded PCs directly
to business by mail order. Subsequently, Dell began to market and sell its
own brand personal computer, taking orders over a toll free telephone line
and shipping directly to customers.
Sales were primarily generated through advertising in computer
trade magazines and eventually in a catalog. Dell combined this low cost
sales/distribution model with a production cycle that began after the
company received a customers order. Dell Computer Corporation had
reported impressive growth for fiscal year 1996 with its sales up 52% over
the prior year. Industry analysts anticipated the personal computer market
grow to 20% annually over the next three years, and Michael Dell
expected that his company, with its build to order manufacturing system,
would continue its double-digit growth. Although Dell Computer had
financed its recent growth internally, management needed a plan for
financing the future growth.
Problem 1

Sales
COGS
Gross Margin
Gross Profit Margin
Ratio

1996
$5.296,
00
$4.229,
00
$1.067,
00
0,20147

1995
$3.475,
00
$2.737,
00
$738,0
0
0,21237

1994
$2.873,
00
$2.440,
00
$433,0
0
0,15071

1993
$2.014,
00
$1.565,
00
$449,0
0

1992
$890,
00
$508,
00
$382,
00

0,4292
0,22294
1

Based on the calculation above we can see that Gross Profit Margin from
1995 to 1996 is decreasing, it means that the percentage of the profit is
also decreased.
Analysis 1
Gross profit margin is decreasing and theres possibility that the
price of raw materials is not balance equals to the increasing of product
price. The other possibility is company has to decrease the price in
penetrating the market so the market share of Dell hopefully will increase.
The decreasing of profit margin is not affect significantly but if it is
compared to year 1992, the profit margin in 1996 has big differences, its
about 1,5 times to the old one.

Solution 1
To rise up the profit margin, Dell should be able to decrease their
production cost. Dell could decrease the production cost by evaluate the
supplier whether the price that has been fixed is the best price to be
achieved and are there any other suppliers that could fulfill Dells need
but in the term where the price should be cheaper than common supplier.
Moreover, Dell can decrease their cost production by doing some
purchases in big amount or in the term of Economic of scale, but by doing
these strategy , it should be supported by increasing Dells selling, so an
optimal marketing strategy will be needed to increase the sales.
Dell can replace some of their raw materials which would be more
efficient in cost such as by choosing the cheaper materials than it used to
be but make sure that it wont decrease their product quality significantly.
Problem 2

a. Company ability in selling their product in1995 is much better

compare to 1996, it can be seen by the increasing of DSI (Days
Sales Inventory) value in 1996, the value in 1996 show that in 1996
the company need longer time to sell their product. If we compare
from quarter to quarter the DSI value in Q496 is faster than Q495.
b. Company ability to delay purchasing their debt is much better in
1995 compared to 1996. That reality can be seen in the decreasing
of DPO (Days Payable Outstanding) value where it usually reflect
how long the company could delay paying their debt. The longer
time needed to pay their debts the better it will be.
c. Company ability in turning their money to goods then back to
money again is better in 1995 compared to 1996. It can be shown
through CCC (Cash Conversion Cycle) value which is decreasing.

CCC (Cash Conversion Cycle) is the value what time is needed by

the company to turn their money into goods then to money again.
The less time is needed by the company to turn their money into
goods, for sure it should be a good solution for the company itself.
d. Company ability to collect their debts is longer than the company
ability to pay their debts. This fact can be seen through the value of
DSO that should be bigger than DPO. It would show us how long
time needed by the company to recollect or to pay their debts. If the
company ability to recollect their debts is longer than company
ability to pay their debts, it means that the company has to prepare
an extra cash to fill the transition days starts from the payment days
till the maturity time for the company to recollect their debts.
Analysis 2
a. The decreasing of company ability in selling their goods happens
because of some factors. The first factor is the appealing of some
new producents that able to provide some products which is better
than Dell Company. The second factor is when the market got slack
season so the laptop product selling is also decreasing. This problem
can be indicated through the industry growth which is decreasing in
1994 to 1995 where the industry growth in 1994 is 37% then
decrease to 31% in 1995.
b. The decreasing of company ability in delaying their debts can be
caused by the decreasing of financial ability of the creditor so the
creditor need to accelerate in collecting their debts so the money
can be used as capital for the company. The other cause is the
decreasing trust from the people who loaned by Dell Company then
that people eager to do quick payment for their debts. These fact
can make the capital of company will decrease so the company
should do some payments for their debts in short term than the
maturity for debt collecting time of Dell.
c. The decreasing of company ability in turning their money caused by
3 factors.
First of all is because of the decreasing of company ability in selling
their goods, the decreasing of given time to maturity to do some
payments for their debts from third party and to increase the time to
maturity by third party to Dell. CCC shows company ability in
turning their money into products then turn them to money.
d. The company ability in delaying the payment for their debt has been
explained in Point B.
Company has been trying to decrease the time to maturity for Dell
by the third party but the amount still not enough to cover the DPO
value. If the value of DPO is bigger than the value of DSO so the
company will need bigger funds to cover the debt payment, then in
the end the company is also required to have a bigger fund for
capital. If the company has bigger value for their DSO than DPO, so
the company will get transition time between the income money

and obligation to pay for, and the company also has time to harn
their money in order to increase income for the company.
Solution 2
To decrease the value of CCC so the company should be able to
decrease the value of DSI and DPO. Then the company also required to
increase the value of DSO. If that requirement has been achieved so the
value of CCC will decrease.
Some things that would be able to achieve that requirement is by
increasing the promotion or marketing strategy that will increase their
sales. Company should tighten their debt collecting to the third party in
order to accelerate that debt payment. The acceleration of debt payment
by the third party then be supported by the marketing strategy which
designed to increase their sales. The last one is company try to have a
negotiation with third party to decrease their sales. Then, company also
required to do negotiation with third party to slow down debt payment.
These strategies are possible to do by delaying the debt payment or do
some payments which are profitable for the company.
Problem 3
Data

Total current liabilities

$939,00

Inventories
Ratio

$429,00

1995
$1.470,
00
$1.594,
00
$752,0
0
$293,0
0

0,47392
9
0,42141
5
5,20235
8

0,45043
9
0,40807
8
4,83983
3

Total Current Assets

Total Assets

working capital
inventories to net
working capital
working capital turn
over

1996
$1.957,
00
$2.148,
00

1994
$1.048,
00
$1.140,
00
$538,0
0
$220,0
0
0,44736
8
0,43137
3
5,63333
3

Working capital ratio in 1996 is increasing compared to 1995. It

shown that there should be increasing for capital for investment in
1995 than 1996.

Analysis 3
Gross profit margin is decreasing and theres possibility that the
price of raw materials are not balance equals to the increasing of product
price. The other possibility is company has to decrease the price in
penetrating the market so the market share of Dell hopefully will increase.

The decreasing of profit margin is not affect significantly but if it is

compared to year 1992, the profit margin in 1996 has big differences, its
about 1,5 times to the old one.
Solution 3
To rise up the profit margin, Dell should be able to decrease their
production cost. Dell could decrease the production cost by evaluate the
supplier whether the price that has been fixed is the best price to be
achieved and are there any other suppliers that could fulfill Dells need
but in the term where the price should be cheaper than common supplier.
Moreover, Dell can decrease their cost production by doing some
purchases in big amount or in the term of Economic of scale, but by doing
these strategy , it should be supported by increasing Dells selling, so an
optimal marketing strategy will be needed to increase the sales.
Dell can replace some of their raw materials which would be more
efficient in cost such as by choosing the cheaper materials than it used to
be but make sure that it wont decrease their product quality significantly.