finance case
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Dell Financial CaseRory Conway C10343835Richard Sykes C10322025
Hen Ryan C10363005Adam O’ Flynn C10361039
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How was Dells working capital policy a competitive advantage?
Dell working capital
Selling directly to customers
Dell had a policy of working with low stock and it used to make stock purchases based on the sale orders received by customers.
This was referred to as Build to order
Dell had 10 % - 20% stock while competitors had 50% - 70%
Dell had Days Supply of Inventory (DSI) as 32 days while the competition average for is:
DSI average = (54 + 73 + 48) / 3 = 58 days
Much lower than the industry average
The lower the better for Dell
DSI average
• No obsolete goods in stock• Little stock taking up space and capital• Quick and efficient ability to adopt to
change in the PC industry• Dell had a first mover’s advantage with
latest technological advancements.• High inventory turnover and low
inventory days. This resulted in low cash conversion cycle (ccc)
Huge competitive advantage
Advantages
How did Dell fund its 52% growth in 1996?
How Did Dell Fund 52% Growth in 1996?
All assets grew by 52%
All liabilities are presumed to have grown by 52%
In order to fund growth;
Operating assets needed to increase by $582 million
Introduced Pentium technology into processors
Unit sales grew by 48%
How might the company fund this growth internally? How much would working capital need to be reduced and/or profit
margin increased? What steps do you recommend the company take?
Growth Internally
There exist several options for a company to finance itself without external help:- Amortization (deduction of asset value narrows profit before tax)- Building reserves (e.g. pension reserves)- Retained earnings (earning are not paid to company owners),- Asset swaps (e.g. selling property or other tangible assets owned by the company)
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