1. Compute the profitability ratios for Dell in the early years (1997-2005). Which of these ratios seems average? Which of these ratios seem above average? Note, by way of comparison, that Compaq and other leading PC makers have profit margins in the 6-8% range. What is the source for Dells astonishing level of profitability for the earlier years? How does it turn an average PM into a high ROA? How does it turn a high ROA into a stupendous ROCE? Relate Dells ratios and success to its business strategy. That is, show the specific ratios that truly reflect Dells unique strategy. What is the role of the cash cycle in your analysis?

Ratios: ROA, Profit Margin on ROS, Asset Turnover, AR Turnover, Inventory Turnover, Fixed Asset Turnover, ROCE, Profit Margin on ROCE, Capital Structure Leverage, Earnings per Share

Dell Computer Corporation (DELL) Income Statement (in thousands) 131/2013 131/2012 1/31/2011 1/31/2010 1/30/2009 56,940,000 $ 44.754.000 12.186.000 62,071,000 $ 48 260.000 13.811.000 81,494,000 $ 50.098.000 11,398,000 52,900,000 $ 61,101,000 $ 42.790.000 50,144.000 10.110.000 10.057.000 8,102.000 1.072.000 8,524,000 856,000 7,302,000 661,000 Net revenue Cost of net revenue Gross Profit Operating expenses Selling, general and administrative Research, development and engineering Non Recurring Total operating expenses Operating Income Investment and other income(loss).net Income before taxes Income tax provision Interest Expense Income after Taxes Extraordinary income (loss) Net income 7,102,000 663,000 2.000 7.767.000 3,190,000 9.174.000 3,012.000 (171,000 2841.000 469.000 9380,000 4,431,000 (191000) 4240,000 749,000 7,963.000 3.433,000 (83.000) 3,350,000 715,000 6,470,000 624 000 795.000 7 889.000 2,221,000 (37000) 2,184,000 591,000 160,000 1.433,000 2/1/2008 2/2/2007 2/3/2006 1/28/2005 1/30/2004 1/31/2003 2/1/2002 21/2001 1/28/2000 1/29/1999 2/1/1998 2/2/1997 61,133,000 $ 57,420,000 $ 55,908,000 $ 49,205,000 $ 41,444,000 $ 35,404,000 $ 31,168,000 $ 31,888,000 $ 25,265,000 $ 18,243,000 $ 12,327,000 $ 7.759,000 49.462 000 47 904,000 45.958.000 40,190,000 33,892,000 29055.000 25.661.000 25.661.000 25.445,000 25,445,000 20,047.000 14 137.000 9.605,000 11.671.000 9516.000 0.250.000 75.2.000 6349,000 6,093.000 9,015,000 5507.000 8.443.000 5.218.000 4, 106,000 2.722.000 1666.000 7,538,000 5,948,000 5.140.000 4.298,000 3,544,000 3,050,000 2,784,000 3,193,000 2,387,000 1,788,000 1,202,000 826,000 610,000 498,000 463.000 463.000 464,000 455,000 452,000 482,000 374,000 272,000 204.000 126,000 83.000 482,000 105,000 194,000 8.231.000 6.446.000 5.603.000 4761,000 4008,000 3.505,000 3.718,000 3,780,000 2,955,000 2,060,000 1.406.000 952.000 3,440,000 3.070,000 4,347,000 4.254,000 3,544,000 2,844,000 1,789,000 2,663,000 2,263,000 2.046,000 1.316.000 714,000 275.000 227.000 191,000 180,000 183,000 158.000) 531000 189.000 38,000 52.000 33 000 3,827,000 3,345,000 4.574.000 4,445,000 3,724,000 3,027,000 1,731,000 3,194,000 2,451,000 2,084,000 1,368,000 747,000 880.000 762,000 1,002 000 1.402.000 1,079,000 905,000 485,000 958,000 785,000 624,000 424 000 216,000 2,947,000 2,583,000 3,572,000 3,043,000 2,645,000 2,122,000 1,246,000 2,236,000 1,666,000 1,450,000 944,000 531,000 (59,000) (13,000) 2.947.000 2,583,000 3,572,000 3,043,000 2.645,000 2,122,000 1.246,000 2,177,000 1,666,000 1,450,000 944,000 518,000 134,000 387.000 3,324,000 846,000 2.372.000 3,492,000 2,635,000 2,478,000 2.372.000 3,492,000 2,635,000 1,433,000 2,478,000 Balance Sheet (in thousands) PERIOD ENDING 1/31/2013 1/31/2012 1/31/2011 1/31/2010 1/31/2009 2/1/2008 2/2/2007 2/3/2006 1/28/2005 1130/2004 101/2003 211/2002 2/1/2001 1/28/2000 1/29/1999 2/1/1998 2/2/1997 ASSETS Current Assets Cash and cash equivalents Short-term investments Accounts receivable, net Inventories, net of allowance Other Current Assets Total Current Assets PPE, net of depreciation Investments Long-term financing receivables Goodwill Intangible Assets, net of amortization Other non-current Assets Total Assets 12,569.000 5 208,000 6,629.000 1.382.000 7.180.000 27.968,000 2.126,000 2,565,000 1,349.000 9.304,000 3,374,000 854.000 47.540.000 13,852,000 $ 956,000 6,476,000 1,404,000 6,750,000 29,448,000 2,124,000 3,404,000 1,372,000 5,838,000 1,857,000 490,000 44,533,000 13,913,000 $ 452,000 10,136,000 1,301,000 3.219,000 29,021,000 1,953,000 1,503,000 10,635,000 5 8,352,000 $ 373,000 740,000 8.543,000 6,443,000 1,051,000 867,000 3.643.000 3.749,000 24 245.000 20,151,000 2,181,000 2,277,000 781,000 454,000 332,000 500,000 4,074,000 1,737,000 1,694,000 724,000 345,000 657,000 33,652.000 26,500,000 7.764,000 $ 9,546,000 $ 7,042,000 $ 4,747,000 $4,317,000 $ 4,232,000 $ 3,641,000 $ 4,910,000 $ 3,809,000 5 1,726,000 S 208,000 752,000 2,016,000 5,060,000 835,000 406,000 273,000 528,000 323,000 923,000 7,693,000 6,152,000 5,452,000 4,548,000 3,635,000 2,586,000 2,269,000 2,895,000 2,608,000 2,094,000 1,180,000 660,000 576,000 459,000 327,000 306,000 278,000 400,000 391,000 273,000 3,035,000 2.829.000 2.620,000 2.083.000 1,519,000 1,394,000 1,416,000 758,000 550,000 791,000 19.880,000 19,939,000 17,706,000 16,897,000 10,633,000 8,924,000 7,877,000 9,491,000 7,681,000 5,807,000 2.668,000 2,409,000 2,005,000 1,691,000 1,517,000 913,000 825,000 996,000 765,000 523,000 1,560,000 2,147,000 2,691,000 4,294,000 6,770,000 5,267,000 4,373,000 2,418,000 1,048,000 532,000 407,000 323,000 325,000 199,000 1,648,000 110,000 1,673,000 780,000 45,000 304,000 15,000 618.000 662,000 382,000 134,000 391,000 366,000 459,000 530,000 27.561,000 25,635,000 23,109,000 23,215,000 19,311.000 15,470,000 13,535,000 13.435,000 11,471,000 6,877,000 320,000 $ 1,524,000 1,486,000 233,000 349,000 3,912,000 342.000 115,000 1.237,000 903.000 251,000 241,000 2,747,000 235,000 4,365,000 1,495,000 262.000 38,599,000 14,000 4,268,000 11,000 2,993,000 851,000 15 474 000 4,285,000 7,316,000 3,580,000 5,989,000 2,944,000 5,075,000 2,444,000 3,538.000 1,654,000 2.257,000 2,397,000 1,298,000 1,040,000 618.000 LIABILITIES Current Liabilities Short Term Borrowing Accounts Payable de Accrued and other Short-term deferred service revenue Total Current Liabilities Long Term Debt Long-term deferred service revenue Other non-current liabilities Total Liabilities 3,843,000 11.579.000 3,644,000 4373000 23.439.000 5.242.000 3.971.000 4.187.000 36.839.000 2,867,000 11,656,000 3,740,000 3.738,000 22,001,000 6,387,000 3,855,000 3,373,000 35,616,000 663,000 11,373,000 3,884,000 3.040.000 18,960,000 3,417,000 3,029,000 2.605,000 28.011.000 113,000 8,309,000 3,788,000 2,649.000 14,859,000 1 898.000 3,000,000 2.472.000 22,229,000 3,158,000 19,483,000 5,145,000 3,518,000 2685.000 30.833,000 225,000 11,492,000 4,323,000 2486,000 18,526,000 362,000 2,774,000 2 164,000 23,826,000 188,000 10,430,000 9,840.000 8,895,000 5,141,000 6,087,000 5,241,000 2,032,000 17,791,000 15,927,000 14,136,000 569,000 504,000 505,000 2,189,000 758,000 2.549.000 2.089.000 21,307,000 18.980.000 16,730,000 10,896,000 505,000 8,933,000 506,000 7,519,000 520,000 6,543,000 509,000 5.192.000 508,000 3,695,000 512,000 1,643,000 1,054,000 2,697,000 17,000 225,000 36,000 2.975,000 1.658,000 18,000 219,000 13,000 1,908,000 1,630,000 13,031,000 1.158,000 10,597,000 802.000 8,841,000 761,000 7,813,000 463.000 6,163,000 349,000 4,556,000 STOCKHOLDERS EQUITY Put options Common Stock Retained Earnings Other Comprehensive Income (Loss) Treasury Stock Other Stockholder Equity 12,187,000 28,236,000 (61.000) (31,445,000) 12.554,000 30 330,000 (59,000) (32,145,000) 21.000 11.797.000 24,744.000 (71,000) (28.704,000) 11,472,000 11,189,000 22.110,000 20,677,000 (37,000) 309,000 (27,904,000) (27,904,000) 747,000 607.000 279,000 195,000 647,000 10,589,000 10.107.000 9,540,000 8,195,000 18,199,000 15,282,000 12,746,000 9,174,000 (16,000) (28,000) (103,000) (82,000) (25,037,000) (21,033,000) (18,007,000) (10.758,000) (47,000) (44,000 6,823,000 6,131,000 (83.000) (6,539,000) (52.000) 6,018,000 3,486,000 (33000) (4.539.000) (59.000) 4.795.000 839,000 62,000 5,605,000 1,364,000 38,000 (2.249,000) (64.000) 3,583,000 1,260,000 533,000 1,781,000 606,000 (36,000) (30.000) (74.000) (68,000) (61,000) (36,000) 10,701,000 8,917,000 7,766,000 5,641,000 4,271,000 3,735,000 4,328,000 4,129,000 6,485,000 6,280,000 4,873,000 4,694,000 5,622,000 5,308,000 2,321,000 1.293,000 1,085,000 Total Stockholder Equity Total Liabilities and Stockholders Equity 47.540.000 44,533,000 38,599.000 33,652 000 26,500,000 27.561.000 25,635,000 23,109,000 23.215,000 19,311,000 15,470,000 13,535,000 13,435,000 11.471,000 6,877,000 4,268,000 2.993,000 Dell Computer Corporation (DELL) Income Statement (in thousands) 131/2013 131/2012 1/31/2011 1/31/2010 1/30/2009 56,940,000 $ 44.754.000 12.186.000 62,071,000 $ 48 260.000 13.811.000 81,494,000 $ 50.098.000 11,398,000 52,900,000 $ 61,101,000 $ 42.790.000 50,144.000 10.110.000 10.057.000 8,102.000 1.072.000 8,524,000 856,000 7,302,000 661,000 Net revenue Cost of net revenue Gross Profit Operating expenses Selling, general and administrative Research, development and engineering Non Recurring Total operating expenses Operating Income Investment and other income(loss).net Income before taxes Income tax provision Interest Expense Income after Taxes Extraordinary income (loss) Net income 7,102,000 663,000 2.000 7.767.000 3,190,000 9.174.000 3,012.000 (171,000 2841.000 469.000 9380,000 4,431,000 (191000) 4240,000 749,000 7,963.000 3.433,000 (83.000) 3,350,000 715,000 6,470,000 624 000 795.000 7 889.000 2,221,000 (37000) 2,184,000 591,000 160,000 1.433,000 2/1/2008 2/2/2007 2/3/2006 1/28/2005 1/30/2004 1/31/2003 2/1/2002 21/2001 1/28/2000 1/29/1999 2/1/1998 2/2/1997 61,133,000 $ 57,420,000 $ 55,908,000 $ 49,205,000 $ 41,444,000 $ 35,404,000 $ 31,168,000 $ 31,888,000 $ 25,265,000 $ 18,243,000 $ 12,327,000 $ 7.759,000 49.462 000 47 904,000 45.958.000 40,190,000 33,892,000 29055.000 25.661.000 25.661.000 25.445,000 25,445,000 20,047.000 14 137.000 9.605,000 11.671.000 9516.000 0.250.000 75.2.000 6349,000 6,093.000 9,015,000 5507.000 8.443.000 5.218.000 4, 106,000 2.722.000 1666.000 7,538,000 5,948,000 5.140.000 4.298,000 3,544,000 3,050,000 2,784,000 3,193,000 2,387,000 1,788,000 1,202,000 826,000 610,000 498,000 463.000 463.000 464,000 455,000 452,000 482,000 374,000 272,000 204.000 126,000 83.000 482,000 105,000 194,000 8.231.000 6.446.000 5.603.000 4761,000 4008,000 3.505,000 3.718,000 3,780,000 2,955,000 2,060,000 1.406.000 952.000 3,440,000 3.070,000 4,347,000 4.254,000 3,544,000 2,844,000 1,789,000 2,663,000 2,263,000 2.046,000 1.316.000 714,000 275.000 227.000 191,000 180,000 183,000 158.000) 531000 189.000 38,000 52.000 33 000 3,827,000 3,345,000 4.574.000 4,445,000 3,724,000 3,027,000 1,731,000 3,194,000 2,451,000 2,084,000 1,368,000 747,000 880.000 762,000 1,002 000 1.402.000 1,079,000 905,000 485,000 958,000 785,000 624,000 424 000 216,000 2,947,000 2,583,000 3,572,000 3,043,000 2,645,000 2,122,000 1,246,000 2,236,000 1,666,000 1,450,000 944,000 531,000 (59,000) (13,000) 2.947.000 2,583,000 3,572,000 3,043,000 2.645,000 2,122,000 1.246,000 2,177,000 1,666,000 1,450,000 944,000 518,000 134,000 387.000 3,324,000 846,000 2.372.000 3,492,000 2,635,000 2,478,000 2.372.000 3,492,000 2,635,000 1,433,000 2,478,000 Balance Sheet (in thousands) PERIOD ENDING 1/31/2013 1/31/2012 1/31/2011 1/31/2010 1/31/2009 2/1/2008 2/2/2007 2/3/2006 1/28/2005 1130/2004 101/2003 211/2002 2/1/2001 1/28/2000 1/29/1999 2/1/1998 2/2/1997 ASSETS Current Assets Cash and cash equivalents Short-term investments Accounts receivable, net Inventories, net of allowance Other Current Assets Total Current Assets PPE, net of depreciation Investments Long-term financing receivables Goodwill Intangible Assets, net of amortization Other non-current Assets Total Assets 12,569.000 5 208,000 6,629.000 1.382.000 7.180.000 27.968,000 2.126,000 2,565,000 1,349.000 9.304,000 3,374,000 854.000 47.540.000 13,852,000 $ 956,000 6,476,000 1,404,000 6,750,000 29,448,000 2,124,000 3,404,000 1,372,000 5,838,000 1,857,000 490,000 44,533,000 13,913,000 $ 452,000 10,136,000 1,301,000 3.219,000 29,021,000 1,953,000 1,503,000 10,635,000 5 8,352,000 $ 373,000 740,000 8.543,000 6,443,000 1,051,000 867,000 3.643.000 3.749,000 24 245.000 20,151,000 2,181,000 2,277,000 781,000 454,000 332,000 500,000 4,074,000 1,737,000 1,694,000 724,000 345,000 657,000 33,652.000 26,500,000 7.764,000 $ 9,546,000 $ 7,042,000 $ 4,747,000 $4,317,000 $ 4,232,000 $ 3,641,000 $ 4,910,000 $ 3,809,000 5 1,726,000 S 208,000 752,000 2,016,000 5,060,000 835,000 406,000 273,000 528,000 323,000 923,000 7,693,000 6,152,000 5,452,000 4,548,000 3,635,000 2,586,000 2,269,000 2,895,000 2,608,000 2,094,000 1,180,000 660,000 576,000 459,000 327,000 306,000 278,000 400,000 391,000 273,000 3,035,000 2.829.000 2.620,000 2.083.000 1,519,000 1,394,000 1,416,000 758,000 550,000 791,000 19.880,000 19,939,000 17,706,000 16,897,000 10,633,000 8,924,000 7,877,000 9,491,000 7,681,000 5,807,000 2.668,000 2,409,000 2,005,000 1,691,000 1,517,000 913,000 825,000 996,000 765,000 523,000 1,560,000 2,147,000 2,691,000 4,294,000 6,770,000 5,267,000 4,373,000 2,418,000 1,048,000 532,000 407,000 323,000 325,000 199,000 1,648,000 110,000 1,673,000 780,000 45,000 304,000 15,000 618.000 662,000 382,000 134,000 391,000 366,000 459,000 530,000 27.561,000 25,635,000 23,109,000 23,215,000 19,311.000 15,470,000 13,535,000 13.435,000 11,471,000 6,877,000 320,000 $ 1,524,000 1,486,000 233,000 349,000 3,912,000 342.000 115,000 1.237,000 903.000 251,000 241,000 2,747,000 235,000 4,365,000 1,495,000 262.000 38,599,000 14,000 4,268,000 11,000 2,993,000 851,000 15 474 000 4,285,000 7,316,000 3,580,000 5,989,000 2,944,000 5,075,000 2,444,000 3,538.000 1,654,000 2.257,000 2,397,000 1,298,000 1,040,000 618.000 LIABILITIES Current Liabilities Short Term Borrowing Accounts Payable de Accrued and other Short-term deferred service revenue Total Current Liabilities Long Term Debt Long-term deferred service revenue Other non-current liabilities Total Liabilities 3,843,000 11.579.000 3,644,000 4373000 23.439.000 5.242.000 3.971.000 4.187.000 36.839.000 2,867,000 11,656,000 3,740,000 3.738,000 22,001,000 6,387,000 3,855,000 3,373,000 35,616,000 663,000 11,373,000 3,884,000 3.040.000 18,960,000 3,417,000 3,029,000 2.605,000 28.011.000 113,000 8,309,000 3,788,000 2,649.000 14,859,000 1 898.000 3,000,000 2.472.000 22,229,000 3,158,000 19,483,000 5,145,000 3,518,000 2685.000 30.833,000 225,000 11,492,000 4,323,000 2486,000 18,526,000 362,000 2,774,000 2 164,000 23,826,000 188,000 10,430,000 9,840.000 8,895,000 5,141,000 6,087,000 5,241,000 2,032,000 17,791,000 15,927,000 14,136,000 569,000 504,000 505,000 2,189,000 758,000 2.549.000 2.089.000 21,307,000 18.980.000 16,730,000 10,896,000 505,000 8,933,000 506,000 7,519,000 520,000 6,543,000 509,000 5.192.000 508,000 3,695,000 512,000 1,643,000 1,054,000 2,697,000 17,000 225,000 36,000 2.975,000 1.658,000 18,000 219,000 13,000 1,908,000 1,630,000 13,031,000 1.158,000 10,597,000 802.000 8,841,000 761,000 7,813,000 463.000 6,163,000 349,000 4,556,000 STOCKHOLDERS EQUITY Put options Common Stock Retained Earnings Other Comprehensive Income (Loss) Treasury Stock Other Stockholder Equity 12,187,000 28,236,000 (61.000) (31,445,000) 12.554,000 30 330,000 (59,000) (32,145,000) 21.000 11.797.000 24,744.000 (71,000) (28.704,000) 11,472,000 11,189,000 22.110,000 20,677,000 (37,000) 309,000 (27,904,000) (27,904,000) 747,000 607.000 279,000 195,000 647,000 10,589,000 10.107.000 9,540,000 8,195,000 18,199,000 15,282,000 12,746,000 9,174,000 (16,000) (28,000) (103,000) (82,000) (25,037,000) (21,033,000) (18,007,000) (10.758,000) (47,000) (44,000 6,823,000 6,131,000 (83.000) (6,539,000) (52.000) 6,018,000 3,486,000 (33000) (4.539.000) (59.000) 4.795.000 839,000 62,000 5,605,000 1,364,000 38,000 (2.249,000) (64.000) 3,583,000 1,260,000 533,000 1,781,000 606,000 (36,000) (30.000) (74.000) (68,000) (61,000) (36,000) 10,701,000 8,917,000 7,766,000 5,641,000 4,271,000 3,735,000 4,328,000 4,129,000 6,485,000 6,280,000 4,873,000 4,694,000 5,622,000 5,308,000 2,321,000 1.293,000 1,085,000 Total Stockholder Equity Total Liabilities and Stockholders Equity 47.540.000 44,533,000 38,599.000 33,652 000 26,500,000 27.561.000 25,635,000 23,109,000 23.215,000 19,311,000 15,470,000 13,535,000 13,435,000 11.471,000 6,877,000 4,268,000 2.993,000