Dell Computer Corporation

Dell Computer Corporation designs, manufactures, and sells custom high performance personal computers. Dell’s core strategy is selling computers directly to customers through a build-to-order manufacturing process. Due to the competitive nature of the computer industry, strong growth is required for Dell to survive consolidation. Dell experienced significant growth in sales of 52% throughout fiscal year 1996; however, this growth was somewhat inhibited by component shortages. While previous growth has been financed through earnings, Dell anticipates the need for external financing in order to continue this level of growth. Dell has three options: it can modify existing inventory policies, issue long term debt, or issue common stock. We think Dell might need EFN.

In order to observe Dell’s growth, we computed common size balance sheets and income statements where each account is expressed as a percentage of sales. This enabled us to observe any significant changes through 1994 to 1996. In addition, to further observe Dell’s financial condition and trends in its balance sheet we calculated numerous ratios. We calculated ROE to determine Dell’s profitability and broke it down through DuPont analysis. In addition, we calculated days’ sales in inventory, days’ sales in receivables, in order to determine how effectively Dell uses its assets to generate sales. We then calculated the sustainable growth rate to confirm that Dell must seek external financing. Lastly, we created a projected balance sheet and income statement to estimate the growth and predict the amount of external financing required for fiscal year 1997.

We concluded that the external financing required will total to $766.50 million. In order to finance the capital needed we decided to increase our long term debt equally by the amount needed. We’re confident that Dell is capable of financing the additional debt that’s it is facing because the cash flows that Dell are predicted

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