Dell Corporation

Consolidated Statement of Cash Flows

February 1st, 2008- January 31st, 2009
Introduction to Accounting for Non-Financial Managers
ADMS1500-N
Hirra Chaudhry: 210382422
Amria Hussaini: 210443604
Abbas Ahmed: 210620623
Amna Chaudhry: 210533859
Patrizia Mucciarelli: 207788748
Samena Faryabi :210448793
Nida Seha: 210411692
March 21st, 2010

Website Address:
C:\Users\Hirra\Documents\York\ADMS1500\Assignments\FY10_Q3_SEC_Form10Q.pdf
 The company chosen to analyze for the purposes of this assignment is Dell
Corporation™, founded in 1984 by Michael Dell who based it on the concept that by selling
computers directly to consumers it is the most efficient way to understand their needs and then
provide computing solutions to meet those needs. Excelling alongside their objectives of
globalizing to a more commercial and individual consumers internationally. Starting off with
$1000 in capital, Dell erased the role of the middle-man selling PC’s directly to consumers. Just
a short four years later, the corporation amazed the global market and competition as it reached
$30 million dollars in IPO, hence increasing the market capitalization from a measly $1000 to
nearly $85 million. Constantly delivering new ideas it introduced the first notebook and created a
boom within internet sales just 8 years later. This boom created sales earning $1 million per day
only seven days after www.dell.com launched. By 2000 Dell astonishingly reached sales of $50
million per day as well leading within their competition as number one in worldwide work
station shipments and in global market share. Their consecutive innovating ideas and strive for
excellence have allowed them to continue to bring profits and revenues to the company. “"Dell's
mission is to be the most successful computer company in the world at delivering the best
customer experience in markets we serve. In doing so, Dell will meet customer expectations of:
Highest quality, leading technology, competitive pricing, individual and company accountability,
best-in-class service and support, flexible customization capability, superior corporate
citizenship, financial stability" (About.com)

Porter Force Analysis:

Competition that exists between Dell and its rivals is greatly intense. Little difference in
industry prices and products has created the direct-service model by Dell that provides custom
configured PC’s directly to customers, no middleman mark-ups and savings to the customer.
Dell`s strategy is providing the best possible customer experience. Superior service, support,
communication, price cuts and point of accountability, has Dell positioned for profitable growth
in the future.
Negotiating powers of Dell’s suppliers are not high. Large sources of fragmented
supplies and suppliers, few dominant buyers, and inexpensive/undifferentiated supplies, suggests
the availability of substitute suppliers and low customer switching costs. Dell has been able to
maintain the strategic orientation laid out by the organization and still offer the same superior
value regardless of the supplying company.
Negotiating power of Dell`s customers aren`t high. Dell’s build-to-order process provides
customers with a product to best suit their budget and allowing a tailor made system for their use.
Dell is effectively competing with industry leaders, providing direct service, lower prices, and
higher quality products and services. Dell establishes a competitive advantage, which allows for
the focus on negotiating powers of its customers rather than rival organizations.
Threat of potential entrants is especially high for the competitive IT industry. It is greater
for Dell and its rivals, especially because they compete in an industry of high uniformity and
availability of technology and little scope of differentiation. The result is low customer switching
costs and thus any new competitor may enter the market without a significant investment.
Threat of substitute products or services is high and constant for Dell, since products are
similar to those offered by top rival competitors, HP and Apple. Regardless, Dell outperforms
 competitors and manages to meet expectations of the corporations underlying strategy. The
direct-service, build-to-order concept, and hallmark customer service allows for Dell to satisfy
their strategy of providing quality product, service, cost, and commitment.

SWOT Analysis
Strengths
• Direct-model allows individuals the
ease of placing orders for fully
customizable PC’s directly from the
factory. In turn, Dell can cater to
specific needs and be able to send the
product within just a few days.
• Direct-model results in lower fixed
costs and quick inventory turn-around
time and thus low-priced, individually-
built computers can be delivered.
Opportunities
• Laptops are becoming much more
popular than desktops and therefore
there is an opportunity of growth if Dell
decides to invest in this trend.
• Most consumers are second-time
buyers and know more about personal
computers; therefore the direct-service
model can be used in such a way that
acknowledges this.
Weaknesses
• Potential buyer cannot examine the
product till after purchase because it is
unavailable in most retail stores and
thus will be hesitant to purchase it.
• A customer may have to wait a few
days before receiving their product
because you cannot purchase a Dell PC
the same way as you could have
purchased another brand because of the
customization process.
Threats
• Dell’s rivals are becoming closer
substitutes as the price difference
between brands gets smaller.
• Technological advancement means
newer, faster, durable, and efficient
technology, that must be kept up with
by competitors or else a loss in market
position is likely.

Interpreting Statements of Cash Flow:

Cash from Operating Activities:

- From 2008 to 2009 there has been a positive increase in net change in cash from operating
activities of $1 473 million. This gives Dell more cash on hand to work with in future
investments. There was an increase in accounts receivables but also an increase for doubtful
accounts because of the state of the economy. Dell feels there will be an increase of people who
cannot pay off their accounts.

Cash Flow from Investing Activities:

- Cash flow from investing activities reports the investment actions that a company makes during
the financial year. Whenever a company makes a major new investment it means that these new
investments are sure signs of expanding or modernizing the production or distribution facilities
and capabilities of the company. On the other hand, major disposals of long-term assets and
closing down a major part of the business could be either good news or bad news for the business
depending on many factors.
When we look at the cash flow statement of Dell Corporation we can clearly see that the
company spent 1,182 million on purchases in 2009 whereas in 2008 it spent 1,150 million. This
could be an indication of some sort of expansion. On the other hand, in 2009 the company
received 1,307 million from sales and maturities whereas in 2008 it received 2,034 million.
Similarly, more cash was spent on capital expenditures in 2008 when compared to 2009. The
company spent approximately half as much in capital expenditures in 2008 when compared to
2009. In addition to this, the disposal proceeds from selling fixed assets were 16 million in 2009
whereas in 2008 it was 44 million. Lastly, the cash received from acquisition of business was
only 3 million in 2009 which is 55 times more than what was received in 2008.

When one compares the cash flow from investing activities in 2008 from 2009, one can
clearly see that there was more investing activity in 2008 than in 2009. The company spent more
money in new investments and capital expenditures which can be a sure sign for some sort of
expansion within in the company. However, when compared to 2008 since the capital expenditure
is less we can say that the company is not planning to expand as much as it did in 2008.
Furthermore, the company sold more facility and land in 2008 and gained more in terms of
salvage value than in 2009. This can indicate that maybe the assets that were sold in 2008 were
probably at the end of their useful life and some of the investments or capital expenditures that
were made in 2009 were probably made in order to replace the assets that were sold in the
previous year. In the end, the change in cash from investing activities in 2008 was 362 million
whereas the change in cash from investing activities in 2009 was a negative cash flow of 111
million. A negative cash flow does not always have to be something bad; in fact a negative cash
flow can indicate heavy investment made by the company which in turn can be seen as a good
sign in terms of expansion in the industry.

Financial Activities:
- In 2008 the net change in financing activities was ($1 252) million. In 2009, it has increase
drastically to $1 729 million. The main reason to this drastic increase between 2008 and 2009 is
in 2008 Dell had repurchased (2,866) million. This was done in reaction to the fall of the
economy to try to sustain the worth of their shares.

Interpreting the Cash Flow Statement: Ratios

Liquidity: Even with the increase of current ratio in 2009, Dell
 Current ratio demonstrates a low liquidly status. Meaning the ratio of
20081.07:1 current assets isn’t large enough to pay off the current
20091.36:1 off short term debts. Considering the norm for current
ratio is 2:1, Dell illuminates an unhealthy state regarding
liquidly.
Profitability:
 Return on Asset -Decrease occurred from 2008-09 because inventory
200812.48% turnover decreased due to decrease of sales. In order to
20094.7% achieve higher ROA Dell should increase their return on
sales or their total asset turnover.
- This decrease of nearly 20% entails that the amount of
 Return on Equity money invested at the beginning of fiscal 2008 was not a
200878.9% high return at the end. This decrease leads to investors
becoming uneasy with continuing to put funds into Dell.
200958%
Debt:
 Debt-to-Asset -Dell has more assets available in comparison to debt as
 200886% (0.86:1) they were able to pay off debts from fiscal year 2008,
200983% (0.83:1) and so their ratio decreased by 3%.
-This is a positive note for Dell as they decreased the
 Debt-to-Equity amount of debt owed. The money earned from revenues
2008635.3% (6.353:1) enabled them to pay off some of their liabilities. Hence,
2009520.5% (5.205:1) the risk of investment in the company went down
because they were able to pay off debt.

Overcoming Obstacles:

As an innovative company, Dell must be able to develop and navigate around distractions
of the corporate environment. Unable to adapt in an unstable, changing environment Dell is likely
to face short and long-term problems. Dell highly depends on technology in order to keep an
infrastructure; disruption by viruses would lead to a significant decline in customers. This decline
would decrease sales, and lower their status terms of their financial position. In addition, as a
company that is functioning on the global market, Dell depends on a healthy economic situation.
However, as they are yet to make a full recovery from the economic recession, it is evident to see
that Dell has not reached full potential of sales. Like many other international companies, Dell
Corporation relies heavily on its vendors and suppliers. These liabilities cause short-term
problems as delays are likely to be caused due to defective merchandise being delivered. An issue
Dell will be unable to easily adapt to is the loss of government contracts, which the company
requires for certain daily operations. The loss of contracts results in vast terminations of
programs. On the other hand, if legal contracts are violated it is under the jurisdiction of the
government to suspend the company as a contractor. These conflicts inevitably affect the net
revenue and profitability for the company. Ultimately, any abrupt changes within the internal and
external environments take a huge toll on the company’s ability to maximize revenues.