Dell’s Working Capital Summary Dell Computer Corporation was founded in 1984 by a nineteen years old guy whose name is Michel Dell. Dell started to market and sells its own product by free telephone line then shipping directly to the customers which is the core strategy of Dell for selling their products. They were advertising for their products in computer trade magazine then they make a catalog for their products. Dell was the first to provide toll-free telephone and on-site support for technical problems so he can differentiate in customer services.

Problem Definition Can Dell maintain a growth rate of 50% so it can beat the industry growth rate forecast? Also, how can we arrange the funding to support this growth rate? Assumption I will assume most of the figures to be as it was in 1996 but I will mention some of the important figures here: 1. Dell will continue to operate with the same efficiency. 2. Gross margin will continue to be 20. 1% of the sale. 3.

Inventory level will continue at 10% to 20% of sale. 4. Cash and short term investment will be 12% as prior year. . Tax rate will continue at 30%.

Analysis We will use percentage of sale method to calculate the pro-forma Income Statement & Balance Sheet and as will be shown that the sales will increase by 33. 33% to be $408 Million in 1997. Pro-Forma Income Statement of Dell Computer Corporation in Millions of Dollars 1997% of sale19961995 Sales7,944 5,2963,475 Cost of Sales6,34379. 9%4,2292,737 Gross Margin 1,601 1,067738 Operating Expense 1,03513. 0%690489 Operating Income 566 377249 Financing & Other90.

1%6-36 IncomeIncome Taxes16730. 0%11164 Net Profit408 272149 Pro-Forma Balance Sheet of Dell Computer Corporation in Millions of Dollars 1997% of sale19961995 Current Assets Cash 831. 0%5543 Short Term Investments88711. 2%591484 Accounts Receivables, net1,08913. 7%726538 Inventories6448. 1%429293 Other2342.

9%156112 Total Current Assets2,93637. 0%1,9571,470 Property, Plant & Equipment, net2693. 4%179117 Other180. 2%127 Total Assets3,223 2,1481,594 Current Liabilities Accounts Payable6998. 8%466403 Accrued and Other Liabilities7108. %473349 Total Current Liabilities1,40917.

7%939752 Long Term Debt1702. 1%113113 Other Liabilities1852. 3%12377 Total Liabilities1,764 1,175942 Stockholders' Equity Preferred Stock9 6120 Common Stock6458. 1%430242 Retained Earnings85510. 8%570311 Other-500. 6%-33-21 Total Stockholders' Equity1,459 973652 Total Liabilities & Stockholders’ Equity3,223 2,1481,594 Therefore, using Percentage of sale method will not lead to a growth of 50% although Dells’ growth is above industry growth which is 30%.