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Financial Management Principles - Essay Example

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Michael Dell, who is also regarded as the computer industry's longest tenured chief executive officer, founded Dell Computer Corporation in 1984. Later in 2003, the company changed its name to Dell, Incorporated. The company is one of the most famous manufacturers of computer worldwide, which caters to the needs of individual and corporate clients with a very unique business concept (About Dell 2004)…
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Financial Management Principles
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Dell, Incorporated Michael Dell, who is also regarded as the computer industry's longest tenured chief executive officer, founded Dell Computer Corporation in 1984. Later in 2003, the company changed its name to Dell, Incorporated. The company is one of the most famous manufacturers of computer worldwide, which caters to the needs of individual and corporate clients with a very unique business concept (About Dell 2004). Dell Incorporated is headquartered in Rock Round, Texas. Currently, Dell, Inc. is widely recognized as one of the market leaders in the global information technology (IT) industry. The company corners the largest market share in the US personal computer (PC) market accounting for 33% in 2003. As an international player, the company is also very aggressive in pursuing strategies to capture rapidly developing economies in Europe and Asia.
As an investor, I believe that an investment in Dell will yield substantial profit. Its leadership position in the global information technology (IT) industry makes it very attractive to investors. The unique and innovative business model of Dell which eliminates wastage and significantly increases production efficiency gives it strong brand equity. This good reputation significantly bids up the price of its stock. Dell's efficiency contributes to profitability.
Dell's stock is a good investment as reflected on its various financial ratios. Table 1 shows the financial ratios of Dell which is divided in four groups-profitability, leverage, activity, and efficiency.
Based on Table 1, Dell shows superior profitability. The company's return on equity is 86.5 % which reveals that every dollar invested in the firm's stock will yields $.856 cents within a year. The company also generates a return on asset of 15.5% while gross margin accounts for 18.2% of the entire revenue. The company's profitability ratios reflect its efficient cost management.
Table 1. Financial Ratios of Dell, Inc.
Source: Advance Financials, 2006
Dell is recognized as one of the most efficient companies in the IT industry. The figures shown in Table 1 further justify this as Dell reported very high inventory turnover. High utilization of fixed assets is also evident in its fixed asset turnover. However, the company's resources are heavily financed by debt. Creditors' share of the company's asset is 82.1% which signifies very small share of investors. In terms of liquidity, Dell is more than able to cover its immediate liabilities with its current assets.
All in all, Dell is a profitable investment. Its high ROE strongly supports this. As other IT industry records flat or declining sales, the company still manages to show high profitability.
About Dell (2004). Retrieved August 4, 2006, from homec=us&l=en&s=corp
Dell (2006). Retrieved August 4, 2006, from^DELL&goUS=1 Read More
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