Cornelia Wong Wen Chieh0309544

Chin Pui Man0310331

Basic Accounting [FNBE 0145]

September 2012 Intake

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Table of Content

No. Content Page

1. Company Background 2

2. Recent Development 3

3. Ratio Calculation : i) Profitable Stability 4

ii) Financial Stability 5

4. Ratio Interpretation : i) Profitable Stability 6

ii) Financial Stability 7

iii) Price-Earnings Ratio 8

5. Investment Recommendation 9-11

6. Appendix 12-13

7. Referencing 14

1

Company Background

When many people think of Dell, they think of personal computers, but that’s just one

part of Dell’s technology portfolio. They innovates the future, technology by

technology.

With multiple business units, groups, teams and positions, the world of Dell is

bustling. Customers can find our niche in any one of their divisions. They will find a

host of products and services to work with:

Servers Storage Printing and imaging systems Workstations Notebook Personal Computers Desktop Personal Computers Networking products Software and peripheral products Managed services Professional services Deployment services Support services Training and certification

2

Recent Development

Dell has made several acquisitions to improve their product and service offerings:

Dell Financial Services Canada Ltd. Compellent Technologies, Inc. Dell SecureWorks® InSite One®

A record-breaking fourth quarter with double-digit growth in the strategic enterprise solutions and services space, and the largest single-year revenue increase in company history.

Acquire Secure Works, RNA Networks and Dell Force10 Networks, leaders in enterprise solutions and services.

Commited $1 billion to develop Dell data and solution centers around the world and open R&D centers in Israel and the U.S.

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Ratio Calculation

Profitable Stability (in millions)

Profitability Ratios 2010 2011

Return on Equity 26356703.5

Net Profit Margin 143352902

2635 61494

Gross Profit Margin

926152902

11396 61494

Selling Expense Ratio

3232.552902

3651 61494

General Expense Ratio

3232.552902

3651 61494

Financial Expense Ratio

14852902

148 61494

4

14334956

2009&2010

Average Owner’s Equity : 4271+5641 2

: 4956

x 100% = 28.9% x 100% = 39.3%

2010&2011

Average Owner’s Equity : 5641+7766 2

: 6703.5

x 100% = 2.7% x 100% = 4.3%

x 100% = 17.5% x 100% = 5.9%

x 100% = 6.1% x 100% = 18.5%

x 100% = 6.1% x 100% = 18.5%

x 100% = 0.28% x 100% = 0.24%

2010

General & Selling Expense : 6465 2

: 3232.5

2011

General & Selling Expense : 7302 2

: 3651

Financial Stability (in millions)

Profitability Ratios 2010 2011

Working Capital

Total Debt2801133652

3083338599

Stock Turnover 365 ÷ 43641 959

365 ÷ 50098 1176

Debtor Turnover 365 ÷ 52902 5284

365 ÷ 61494 6165

Interest Coverage

148+1433 148

83+2635 83

Ratio Interpretation

Profitable Stability

5

2009&2010Average Inventory : 867+ 1051

2 : 959

2010&2011Average Inventory : 1052+1301

2 : 1176

2009&2010Average Debtors : 4731+5837

2 : 5284

2010&2011Average Debtors : 5837+6493

2 : 6165

2424528011 = 0.87:1

= 83.24%x 100% = 79.88%x 100%

= 8 Days = 9 Days

2902130833 = 0.94:1

= 10.7 times = 32.8 times

= 36 Days

Days

= 37 Days

During the year 2010 to 2011, the Return on Equity (ROE) has increased from

28.9% to 39.3%. This means the shareholders are getting more return on their

investment.

While for the Net Profit Margin (NPM), it has increased from 2.7% to 4.3% during

the year of 2010 to 2011. Which means Dell is controlling their overall expenses

better at 2011 than 2010.

Besides that, the business ability to control cost of goods sold is getting worst because

Gross Profit Margin (GPM) has decreased from 17.5% to 5.9% during the year

2010 to 2011.

During the year 2010 to 2011, the Selling Expense Ratio (SER) and General

Expense Ratio (GER) has increased from 6.1% to 18.5%. This means the business

ability to control selling and general expense are getting worst.

Lastly, during the year 2010 to 2011, Financial Expense Ratio (FER) has decreased

from 0.28% to 0.24%. This is good news as the business ability to control financial

expense is getting better.

Financial Stability

6

During the year 2010 to 2011, Working Capital (WC) has increased from 0.87:1 to

0.94:1. This means the ability of the current asset of Dell to pay back current liability

is getting better. But at the same time, it does not have the minimum ratio 2:1

requirement.

While for Total Debt (TD) in year 2010 to 2011, it has decreased from 83.24% to

79.88. This means Dell carries less debt than before. However, it is above the 50%

maximum limit.

During the period of 2010 to 2011, Inventory Turnover (IT) has increased from 8

days to 9 days. This means Dell is selling their goods at slower rate.

Besides that, Debtor Turnover (DT) of 2010 to 2011 has increased a day which is

from 36 days to 37 days. Which means Dells is collecting their debt at slower rate.

Last but not least, during the year 2010 to 2011, Interest Coverage (IC) has

increased from 10.7 times to 32.8 times. This means the ability of this business to pay

its interest expense become stronger.

Price-Earnings Ratio (P/E ratio)

7

Dell current share price is $ 12.6 and earnings per share in year 2011 is $1.36

Ratio:

This means, Dell’s price/earnings ratio is 9.3.

Besides that, it also means that if an investor invested this year, he/she have to wait

for 9 years to recoup his/hers investment to claim back his/hers original principal.

Investment Recommendation

8

12.61 1.36 = 9.3

Firstly, we will look into profitable and financial stability of year 2010 and 2011. As

we can see from the previous page, numbers and calculations were recorded to refer.

Profitable stability

Return on equity(ROE)

As the information shown, owner, shareholders and investors are

getting more return on their investment.

So it is a good point of it.

Net profit margin (NPM)

The business controls their overall expenses well.

Thus, more profit the business will make.

Good point

Gross profit margin (GPM)

The business couldn’t control their cost of goods sold well.

It will cause lose to business

Bad point

Selling Expense Ratio (SER) & General Expense Ratio (GER)

Couldn’t manage the expenses well

Cause lose to business

Bad point

Financial Expense Ratio (FER)

Managed financial expense well.

Good point

Financial Stability

Working Capital (WC)

9

Better than previous years

But, unstable because it did not achieve minimum of ratio 2:1

Strong but risky.

Total Debt (TB)

Improvement in carries debt.

But still exceed maximum limit of 50%

Strong but risky

Stock turnover (ST)

Sell of stock at slower rate

Remain the same with previous year

Strong as a day doesn’t influence much

Debtor Turnover (DT)

Collect debt at slower rate.

Strong as it only one day difference.

Interest Coverage (IC)

Ability to pay interest is strong.

Conclusion

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As we can see, the good and strong points are more than bad points. From here, we

got 51% of overall performance. The other 19% from profitable and financial stability

occurs in GPM,SER and GER as Dell couldn’t manage their selling and general

expense and eventually it will effect GPM as it involves cost of goods sold.

Lastly, we would like to related it back to Price-Earnings Ratio, as we can see, it is

under 15. So if we were to invest into a business, we would like to invest into Dell.

Appendix

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Dell’s stock price at date Jan 17th,2013, at 1900 hour.

Dell’s balance sheet of year 2009 and 2010.

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Dell’s P&L statement of year 2009,2010 and 2011.

Dell’s balance sheet of year 2010 and 2011.

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Reference list

1) Form 10-K for Fiscal Year 2011, Dell. Retrieved Jan 7th, 2013, fromhttp://content.dell.com/us/en/corp/d/corporate~secure~en/Documents~FY11_Form10K.pdf.aspx

2) Dell, Nasdaq. Retrieved Jan 17th, 2013, retrieved from http://www.nasdaq.com/symbol/dell. (Del13)

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