[Financial Management] Dell

In the view of an investor: Predicting the future is what financial statement analysis is all about, but in the view of the management: Financial statement analysis is useful both as a way to anticipate future conditions and, more important, as a starting point of planning actions that will influence the future course of events.

Dell Company, strongly compete against the IBM and HP peer companies and it is noticeable that the Dell Company gained increasing market trends.

Brief Analysis

The company’s net profit for the year 2005 was divided by the net revenues, in which is often expressed in percentage. This indicates on how effective a company at cost control. The higher the net profit margin is the more effective the company in converting the revenue into an actual profit. The net profit margin is a good way of comparing the companies like the IBM and HP which is in the same industry because they are subject to similar business conditions. It is also used in comparing companies of different industries to tell which industry is more profitable.

The Return on Equity indicates the rate of return in the stockholder’s equity. The increasing return on assets and equity is an advantage of the company to allocate more of their investments in any other proposed projects.

Meanwhile, the debt-equity ratio measure’s the company’s financial leverage. If a company handled higher debt-equity ratio, the assumptions will be riskier, especially in times of rising interest rates. It is because due to the additional interest for the long-term debt. In contrast, the company’s good performance in the industry is good news to the company. This turnover in accounts payable only means that a company is paying off their suppliers in an average projected in the industry.

The gross profit margin of the company has a poor indication. A gross profit margin indicates that every dollar generated in sales will help the company cover the operating costs and profit. And the ratio of the company in inventory only indicates that the company has a more chance to sell their products, even if there are existing peer companies like IBM and HP.

Consulted Work:

Brigham, E., & Gapenski, L., 1997. Financial Management Theory and Practice. Dryden Press 8^th Ed. Pp. 35 – 57.