Financial Analysis of Dell - Essay Example

Dell, Inc. is a leading supplier of information technology equipment and peripherals such as printers, music players, mobile phones, laptop and desktop computers and software, and servers and storage systems. Founded in 1984 by Michael Dell, currently the Chairman of the Board, it generated total sales of $55.9 billion and profits of $3.6 billion in 2006 on the basis of a direct-selling business model to a growing global corporate and consumer market. Customers place orders over the phone or the Internet, pay for purchases up front, and wait for on-time delivery.

Its business model allows Dell to sell computers at a lower price and that are tailor-fit to each customer's needs. Although it began by selling to individual consumers, the company now generates over 75% of its sales from large corporate accounts. Using a supply chain and financial management system that it innovated and successfully continues to improve, the company keeps spare parts and finished products inventories low, its cash volumes high, and net profits optimized to drive phenomenal corporate growth.

In the task of managing a 65,000-strong global workforce spread in seven manufacturing sites in the U.S., Brazil, Malaysia, China, and Ireland, Dell is assisted by President/CEO Kevin Rollins and a team of directors and professional managers from its Austin, Texas headquarters and five regional offices (Dell, 2006e, p. 22-24).The company belongs to the highly competitive technology sector populated by established companies. It competes for global market share in computer hardware sales with IBM, HP, Xerox, and Apple of the U.S., and with NEC, Fujitsu, and Canon of Japan.

Due to the effects of global competition on operating margins, Dell has evolved from a mere assembler and seller of products developed by other companies - such as Intel that supplies computer chips and Taiwanese companies supplying wires and other parts - into a designer of its own products like PDAs and PCs.The first half of 2006 was good for Dell. Fortune ranked the company 25th among the 500 Largest U.S. Corporations; 23rd in annual profit growth measured in Earnings per Share over the last ten years hitting 33.

1%; and 2nd in Ten-Year Total Return to Shareholders with 39.4%, making it the second best investment in the list (McGirt, 2006). Its revenues made it the 88th largest company and the third largest supplier of computers and office equipment in the world after IBM and Hewlett-Packard (Lustgarten, 2006).However, the second half of the year has been brutal for the company. First, a battery in a Dell laptop exploded in the U.S., which turned out not to be an isolated case, leading Dell to recall and replace 4.

1 million batteries, the largest such order in the history of American business, opening the company to embarrassment and potential lawsuits. Second, Dell made public that in August 2005, the Securities and Exchange Commission (SEC) launched an investigation of its accounting practices. This double trouble