Dell’s Working

Capital
PRESENTED TO: PRESENTED BY:
Mr. Nikhil Kaushik Sanyam Goel (BM-018283)
Satyam Singh (BM-018284)
Saurabh Chaudhary (BM-018285)
Saurabh Tripathi (BM-018286)
Saurabh Pun (BM-018287)
Introduction
 Question 1
Is dell’s working capital management
a competitive advantage?
Dell had a policy of working with low inventory and it used
to make inventory purchases based on the sale orders
received. This led to following advantages:
• No obsolete goods.
• Defects in raw material manufacturers were easily weeded
out.
• New technological upgradations. Thus Dell had a first
mover’s advantage in being abreast with latest technological
inclusion.
• Selling directly to customer
• Build to order model
1990-1993
• Captures small Business and first time consumers.
• Annual sale increase 268% within 2 years.
• In year 1993 faces loss, reason been sell off excess
inventory and cost of scrapping failed notebook line.
1993-1996
• Requiring each business to provide detailed profit and
loss statement.
• Helped in exiting low margin indirect retail channels.
• Converted entire major product line to the Pentium
technology.
 Question 2
How did Dell Fund its 1996 growth?
 Dell’s Sales V/s Industry
Year Dell % Industry %
1991 63 -2
1992 126 7
1993 43 15
1994 21 37
1995 52 31
 Stock holder Equity in Balance Sheet

Stock holder Equity 1996 1995 1994

Preferred Stock 6 120 NA
Common Stock 430 242 NA
Retained Earnings 570 311 NA
Other 33 21 NA
Total Stockholders Equity 973 652 471

11,90,000 shares of preferred stock converted

to common stock in fiscal year 1996.
 Question 3
Can Dell internally fund a 50% increase
in sales in 1997?
• The Days Accounts Receivable comes out to 44 days. The
Days Accounts Payable is 37.45 days while the Days
Inventory Turnover is about 31.15 days. This brings the cash
conversion cycle to 37.7 days.
• Hence additional operating asset of $794mn is required to
sustain the growth. The increase in the current liability acts
as source of funds, which is $469mn. Estimated increase in
net profits is about $123mn to reach the figure of $395mn.
The short-term investment is assumed to stay the same as
year 1996 i.e. $591mn.
• Hence we can safely say that the growth will be internally
funded.
THANK YOU