Refer to the annual report of Dell in Appendix A:

Required:

a. Explain how the following items create differences between Dell’s earnings from continuing operations and its net cash provided by operating activities:

(1) Depreciation and amortization (3) Decrease in receivables

(2) Change in deferred taxes (4) Decrease in inventories

b. Explain why net income is much less than cash from operations in 2005.

c. Calculate Dell’s free cash flows for each of the past three years.

d. How has Dell used its free cash flows during the past three years?

e. How much cash has Dell returned to shareholders during each of the past three years and in total?

Annual Report of Dell:

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(dollars in millions) Net revenue. Gross margin. % of net revenue.. Operating expenses. % of net revenue.. Operating income..... % of net revenue.. Tax provision before repatriation charge... % of income before income taxes.. Tax repatriation charge....... % of Income before income taxes. Income tax provision. % of Income before income taxes. Net income. % of net revenue.. FISCAL YEAR ENDED January 28, Percentage January 30, Percentage January 31, 2005 Change 2004 Change 2003 $49,205 $ 9,015 18.3% $4,761 9.7% $ 4,254 8.6% $1,122 25.2% 280 6.3% $1,402 31.5% $ 3,043 6.2% 19% 19% 19% 20% 15% $41,444 $ 7,552 18.2% $ 4,008 9.7% $ 3,544 8.6% $ 1,079 29.0% $ $ 1,079 29.0% $ 2,645 6.4% 17% 19% 14% 25% 25% $35,404 $ 6,349 17.9% $ 3,505 9.9% $ 2,844 $ 8.0% $905 29.9% $905 29.9% $2,122 6.0%