1. Assessment of Dell’s performance.
Looking over Dell’s financial statements many things are evident. Revenues have shown a steady increase over the past 5 years, with a most recent increase of 6.5% in 2008. Gross profit margins have steadily increased at about 18% over the past 5 years with net profit margins steadily increasing around 5%. This concludes that Dell is efficiently operating enough to recover not only the cost of the product but the cost of operating expenses and the cost of debt.
Comparing Dell’s current assets to its current liabilities, it is determined that Dell has a 1.07 current ratio. Having a ratio over 2.0 indicates that a company is not investing its assets well and a ratio under 1 is considered a risk because it indicates the company doesn’t have enough cash to pay bills due over the next 12 months. Dell is within the parameters, but very close to the risk line. Looking at the acid test ratio it is determined that Dell placed low with a .75:1 ratio. This shows that Dell cannot pay their current liabilities without being dependant on the sale of inventory.
Assessing Dell’s financial leverage using the debt to asset ratio one sees that Dell is financed more through equity; however, Dell’s debt is at a .82 ratio where it should be half (.50) or less the dollar amount of its total assets. To further expand on Dell’s debt, we can look at the debt to equity ratio. This ratio grew from 4.77 in 2007 to 6.19 in 2008. Having a ratio over 1 tells us that debt is higher than the amount of equity. Most lenders like to see a ratio of around 1 because that shows that debt equals equity. It would be advised that Dell lowers its debt levels or places more money back into the company. Dell’s return on equity over the past 5 years has increased by at least 42% each year, peaking at 86.5% in 2006 and having a current return in 2008 of 77%. This