Dell's Working Capital

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Session Write-up October 27, 2010

Dell's Working Capital

The case:

The case deals with Dell Computers which shown impressive growth in the past and is expected to grow in double digits in the near future. A financial plan is needed to achieve this target.

The company:

Dell Computers which primarily manufactures computers differentiates itself by offering lower price than its competitors due to its build-to-order manufacturing strategy. Dell is currently growing at 52% as compared to industry average of 31%.

The Issue:

The key issue in the case to be handled is for Dell to calculate its working capital and plan its future financials accordingly.

Case Analysis:

As Dell operates on a build-to-order mechanism, the management of inventory is relatively easy for the work-in-progress and finished goods. Dell has a good inventory of components required for manufacturing of computers. Dell also has a relatively higher growth rate as compared to its competitors.

When Dell's operating income increased from $67 million to $377 million, the profit increased proportionately from $51 million to $272 million. The operations in Dell were flexible and efficient since technology changes were able to cope up due to the low inventory and the cost associated with it.

Dell's inventory is expected to grow at 11% and sales by 50%. Using these figures and computing other values, we were able to estimate that the debt required for financing Dell's future growth is about $484 million.

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