Dells Working Capital

29116044 - Muhammad Irhamsyah

29116096 - Gunachandra
29116185 - Adinda Sheilla Alamanda
29116214 - Surgia Kreshna M
Company Background
Dell Computer Corporation was founded in 1984 by then nineteen-year-old Michael Dell. The company designed, manufactured,
sold, and serviced high performance personal computers (PCs) compatible with industry standards.
How was well Dells working capital policy a
competitive advantage?
Pros & Cons Dells Working Capital Policy

Pros: Cons:

Dells supply of inventory was significantly lower than It has led to the component shortages in 1996.
its competitors. Larger dependence on the on-time high quality supplies
Low carrying cost, reinforces it custom build-to-order from manufactures.
strategy. When product changes, process should start fresh by
Less expensive to shift promptly to the latest trashing out existing ones.
technology.
Providing the latest systems at the same price as
competitors out-dated ones.
Generates cash from maintaining low cash conversion
cycle.
More sales can be stimulated on credit basis.
Low inventory with low fixed assets gives Dell a higher
return on capital employeed.
Dells Working Capital Policy

Industry rivals strategy: Dells main strategy:

Assembly to forecast, retaining a substantial finished goods Selling straight to consumers and a manufacturing cycle
inventory. that started after a buyers order.
A personalized purchase within a small amount of time.
Small finished goods inventory balances.
Dells funding in 1996
Dells Funding in 1996
Dells Funding in 1996

Operating assets in 1995 = $1594 - $484 = 1110

Percent operating assets to sales in 1995 = 1110/3475 = 31.94%
Operating assets in 1996 = sales in 1996 x percent operating assets
= 31.94% x $5296 = $1692
Increasing of operating assets = $1692 - $1110 = $582
Cash flow from profit = $272
Financing from current liabilities (without account payable) and retained earnings in 1995 = $349 + $311 = $660
Percent to sales = 660/3475 = 18.99%
Dells Funding in 1996

Financing from current liabilities (without account payable) and retained earnings in 1996 = 18.99% * $5296 = $1006
Increasing from 1996 to 1996 = $1006 - $660 = $346
Total cash flow = $346 + $272 = $618

So, the total cash flow more than operating assets that is required for funding dells operation in 1996.
 The income statement projection for 1997

Dells funding in 1997

Assumption Dells increase sales 50% in 1997
Dells Funding in 1997

Operating assets in 1996 = $2148 - $591 =$1557

Percent operating assets to sales in 1996 = 1557/5296 = 29.4%
Operating assets in 1997 = sales in 1996 x percent operating assets
= 29.4% x $7944 = $2336
Increasing of operating assets = $2336 - $1557 =$779
Cash flow from profit = $396
Financing from current liabilities (without account payable) and retained earnings in 1996 = $473 + $570=$1043
Percent to sales = 1043/5296 = 19.69%
Dells Funding in 1997

Financing from current liabilities (without account payable) and retained earnings in 1996 =19.69% x $7944 = $1565
Increasing from 1996 to 1996 = $1565 - $1043 = $522
Total cash flow = $396 + $522 = $918

So, the total cash flow more than operating assets that is required for funding dells operation in 1997.
Thank You