Problem 1: Financial Statement Ratio Analysis

Use the following financial statements for Dell, Inc. to answer the questions which follow:

After doing a thorough analysis of the information and comparison of ratios, both over time and to the industry, comment on the strengths and weaknesses of Dell. Make a solid assessment statement about Dells information in each of the following areas. Remember to add clarification statements to your answers that show your depth of knowledge.

A. Liquidity:

B: Inventory Turnover:

C. Debt:

D. Profitability:

1. Which statement does not describe the fixed assets of Dell.

a. Dells fixed asset turnover was close to the industry standard 2 years ago, dropped and then gained a little, but is still worse than the industry.

b. Dells fixed assets are decreasing as seen on the balance sheet.

c. Dells seems to have sold some fixed assets as seen on the cash flow statement.

d. Dells fixed assets have the same relationship to sales over time.

2. Which statement does not describe the revenues of Dell.

a. Revenues grew in 2018 and slightly dipped in 2019.

b. Revenues are increasing as a percentage change in 2019.

c. Revenues are being reduced by increasing costs.

d. Any increase in revenue seems to be more than proportionately decreased by costs.

3. Which statement is not reflected in the cash flow statement in the year 2019?

a. Dell bought some capital expenditures.

b. Dell sold some stock.

c. Dell kept all of their net earnings as retained earnings.

d. Dell issued some long term debt.

4. The primary goal of Dell if it is interested in serving its stockholders should be to:

a. Minimize the debt used by a firm.

b. Maximize expected EPS.

c. Minimize the chances of losses.

d. Maximize the stock price per share.

e. Maximize expected net income

BALANCE SHEET ($Mil) % % 2017 10,298 % 40.2 2018 7,972 2019 9,092 28.9 34.3 Cash & Short Term Investments Accounts Receivable Inventory Other Current Assets Total Current Assets Net Fixed Assets Intangibles Other Long Term Assets Total Assets 6,152 24.0 660 2.6 2,829 11.3 19,939 76.6 2,409 8.7 0 0 3,287 14.7 25,635 100.0 7,693 27.9 1,180 4.3 3,035 11.0 19,880 72.1 2,668 9.7 2,428 8.8 2,585 9.4 27,561 100.0 6,443 24.3 867 3.3 3,749 14.1 20,151 76.0 2,277 8.6 2,461 9.3 1,611 6.1 26,500 100.0 Accounts Payable Short-Term Debt Accrued Liabilities Other Short-term Liabilities Total Current Liabilities Long Term Debt Other Long Term Liabilities Total Liabilities 10,430 188 2,770 4,403 17,791 569 2,947 40.7 0.7 10.8 17.2 69.4 2.2 11.5 11,492 225 1,920 4,889 18,526 362 4,938 41.7 0.8 7.0 17.7 67.2 1.3 17.9 8,309 113 1,544 4,893 14,859 1,898 5,472 31.4 0.4 5.8 18.5 56.1 7.2 20.6 21,307 83.1 23,826 86.4 22,229 83.9 Total Equity 4,328 16.9 3,735 13.6 4,271 16.1 Total Liabilities & Equity 25,635 | 100.0 27,561 100.0 26,500 100.0 INCOME STATEMENT ($Mil) 2017 % 57,420 100.0 2018 % 61,133 100.0 2019 % 61,101 100.0 Revenue COGS 47,904 83.4 49,462 80.9 50,144 82.1 Gross Profit 9,516 16.6 11,671 19.1 10,957 17.9 Operating Expenses 7,538 610 11.6 1.1 SG&A R&D Other Operating Income 5,948 498 0 3,070 10.4 0.9 0.0 5.3 12.3 1.0 0.1 5.6 7,102 663 2 3,190 83 0.0 3,440 5.2 343 Na 461 Na 227 na 3,390 5.9 3,872 6.3 3,417 5.6 Net Interest Income & Other Earnings Before Interest and Taxes Interest Expense Earnings Before Taxes Income Taxes Earnings After Taxes 45 na 3,345 762 2,583 Na 5.8 1.3 4.5 45 3,827 880 2,947 Na 6.3 1.5 4.8 93 3,324 846 2,478 5.4 1.3 4.1 STATEMENT OF CASH FLOWS ($Mil) 2017 2018 2019 2583 2947 2478 Cash Flows from Operating Activities Net Income Depreciation & Amortization Deferred Taxes Other Cash from Operations 471 607 769 0.0 915 3969 0.0 395 3949 86 (1439) 1894 Cash Flows from Investing Activities Capital Expenditures Other Cash from Investing (896) 1899 1003 (831) (932) (1763) (440) 617 177 Cash Flows from Financing Activities Net Issuance of Stock Dividends Other Cash from Financing (2712) 0.0 161 (2551) (3868) 0.0 (252) (4120) (2788) 0.0 1382 (1406) Currency Adjustments 71 152 (77) Change in Cash 2492 (1782) 588 FINANCIAL RATIOS Category Current Ratio Quick Ratio 2017 1.12 0.92 2018 1.07 0.85 2019 1.36 1.05 Industry 1.44 1.13 Inventory Turnover Days Sales Outstanding (DSO) Fixed Assets Turnover 77.5 27.7 26.0 53.8 31.6 24.1 49.0 31.9 24.7 56.1 28.6 26.9 Debt to Total Assets Times Interest Earned 5.9 Na 7.4 Na 6.2 na 4.9 na Net Profit Margin Return on Total Assets Return on Equity 4.5 10.6 61.1 4.8 11.1 73.1 4.1 9.2 61.9 7.0 12.4 23.5 Price / Earnings Market / Book 18.6 5.4 28.2 5.1