Company History:
The company Dell Technologies is a family of businesses which are all strategically aligned with each other. The company is basically committed to progressing through technological advancement. The company is focused on aiding its customers in the transformation of their businesses via the use of workforce, IT and security transformation along with strengthening their market position in IT infrastructure and client solutions. Dell can be traced back to its origin in 1984 when its founder Michael Dell formed the Dell Computer Corporation while being a student in the University. The company is centered on bringing together software, hardware, and services.
The company has recently combined with EMC to strengthen its IT solutions. Looking at the fiscal year of 2018, the company has celebrated its anniversary of a merger with EMC. The stock performance of the Dell common stock for the last three years shows that the company stock has increased by $ 47.71. In 2018, the company generated revenue of $78,660 which is higher than the last two years’ revenue. It has led to an improved Gross Margin for the company; however, due to higher operating expenses, the company has generated a higher operating loss as compared to the last two years (Dell Inc).
1-Liquidity Ratios: Dell Technologies Inc.
The liquidity ratios of the company would yield information on the liquidity position of the company. It is important for investors and financial institutions to look at liquidity ratios before investing or providing debt to the company.
Current Ratio: Dell Technologies Inc.
Firstly, the current ratio is computed by.
Current Ratio = (Current Assets)/ (Current Liabilities)
Quick Ratio: Dell Technologies Inc.
The findings show that the current company ratio declined in 2017 as compared to 2016 and then improved in 2018. However, as the current ratio is less than 1, it cannot be considered a safe ratio. It shows that the current liabilities are more than current assets in hand.
Quick Ratio is computed as.
Quick ratio (QR) = ((Current Assets-Inventory))/ (Current Liabilities)
The calculations show that as like Current ratio, the quick ratio has the same trend as well. It has improved as compared to 2017. The quick ratio is also not very low as compared to the current ratio which shows that not a very high amount is tied up in inventories.
Cash Ratio: Dell Technologies Inc.
The cash ratio will show how much of the liabilities can be covered by cash in hand. It is given as.
Cash ratio = (Cash Equivalents + Cash)/ (Current Liabilities)
The cash ratio has remained at 0.25 in 2016 and 2017 and then it has improved to 0.30 in 2018. It shows that about 30% of the current liabilities are readily coverable.
The above graph shows the three liquidity ratios being contrasted. The current ratio is the higher shows that quick ratio is not way too lower than the current ratio. Overall, the liquidity of the company is better, but it can be improved by going higher than 1(Dell Technologies).
2-Efficiency Ratios: Dell Technologies Inc.
Efficiency ratios yield information on the efficiency of the operations of the company. The ratios are calculated as follows.
Inventory Turnover Ratio: Dell Technologies Inc.
The inventory turnover ratio shows how efficiently the inventory has been converted into sales by comparing it with the cost of goods sold. It is calculated by.
Inventory Turnover Ratio= (Cost of Goods Sold)/ (Average Inventory)
Asset Turnover Ratio: Dell Technologies Inc.
The inventory turnover ratio is improved in three years quite efficiently. The improved inventory turnover ratio shows that more inventories have been converted into sales either due to higher sales or larger discounts.
Asset turnover ratio is the ratio which shows how efficiently the company has utilized its assets in yielding sales revenue.
Asset Turnover Ratio= (Net Sales)/ (Average Total assets)
The asset turnover has also improved because of the better net sales of the company. It shows that Dell has improved by efficiently utilizing its assets.
Fixed Asset Turnover Ratio: Dell Technologies Inc.
The fixed asset turnover ratio is the ratio which shows how efficiently the company has utilized its fixed assets in yielding sales revenue.
Fixed Asset Turnover Ratio= (Net Sales)/ ((Fixed Assets-Accumulated Depreciation))
3-Profitability Ratio: Dell Technologies Inc.
Fixed asset turnover has declined in 2017 by a huge amount because of the higher asset value. It improved in 2018 by some margin because of the higher net sales combined with the lowered fixed assets value. Combined, the company efficiency has improved.
Gross Profit Margin: Dell Technologies Inc.
The Gross Margin Ratio of Dell has improved in the last three years from 16% to 25%. It is because of the higher net revenues.
Gross Profit Margin= (Revenues-Cost of Goods Sold (COGS))/Revenue*100
Operating Margin: Dell Technologies Inc.
The operating margin of the company has been negative for all three years. Even with greater sales, the company operating loss has increased due to the higher operating expenses.
Operating Margin= (Operating Income)/Revenue*100
Net Profit Margin: Dell Technologies Inc.
The Net Profit Margin of the company, like its operating margin, has declined in the three years, even with the higher sales due to its higher expenses.
Net Profit Margin= (Net Profit)/ (Tota Revenue) *100
The gap between the gross profit margin and the Net profit margin shows the operating expenses.
4-Solvency Ratios: Dell Technologies Inc.
Total Debt to Total Assets Ratio: Dell Technologies Inc.
Dell Inc debt to Asset ratio declined in 2017 and then improved in 2018. This ratio shows that over more than 80% of the assets of Dell are financed by its debt, which is not a good sign for investors.
Total Debt to Total Assets Ratio= (Total Liabilities)/ (Total Assets)
Debt to Equity Ratio: Dell Technologies Inc.
The Debt-to-Equity ratio has declined substantially as compared to the 29.7 ratios in 2016. However, in 2018, at 7.16, it is still quite high.
Debt to Equity Ratio= (Total Liabilities)/ (Shareholder^’ s Equity)
Times Interest Earned (TIE): Dell Technologies Inc.
The time’s interest earned ratio is not showing the true picture of the company here because of the negative net income and negative interest expense.
Times Interest Earned (TIE) = (Earnings Before Interest and Tax (EBIT))/ (Interest Expense)
Conclusion:
To conclude, it can be said that the company Dell Technologies Inc is not efficiently operating as depicted through its profitability, solvency, and liquidity ratios. Even though the efficiency ratios are good enough, the net loss, a negative return on equity, high debt financing, and lower current ratio are worrisome indicators of the firm’s performance.
Dell Technologies should not only improve its efficiency but also increase its profitability. Furthermore, it would do well to lower its debt-to-equity ratio to reduce its dependency on debt financing. The company has reported that its net revenue increased by 28%, which was attributable to the revenue increase from the acquired business of EMC and the incline in the CSG revenue. The operating loss increased by 2% in the year 2018 which was found to be due to the higher expenses that were incurred for the acquisition of the EMC which was however offset by its increment in the gross margin.
The operating loss is also attributed to the amortization of the intangible assets, the transaction of going-private, and from corporate expenses, and transaction-related expenses. The total operating expenses of the company have increased from 26.3% to 29% in 2018 and from 17.5% to 26.3% in 2017. The expansion of the Research and Development capability and the selling, general and administrative expenses and from acquiring EMC transactions has led to the net loss. It is expected that this loss will be recovered in the coming year with the benefits expected from the merger with EMC as most operating expenses were caused by the acquisition of EMC in 2018. Dell Technologies is therefore needed to reduce its cost and improve its profitability.
Work Cited
Dell Inc. “Dell Inc 2018 10K Report.” Dell Inc. Dell Inc, 2018. Web. 27 July 2018. https://investors.delltechnologies.com/static-files/9d4aca86-7fd6-4b4f-ab4b-4895fa562826.
Dell Technologies. “SEC Filings.” Dell Technologies. Dell Technologies, 2018. Web. 27 July 2018. https://investors.delltechnologies.com/financial-information/sec-filings?field_nir_sec_form_group_target_id%5B%5D=471&field_nir_sec_form_group_target_id%5B%5D=491&field_nir_sec_date_filed_value=2017&items_per_page=10#views-exposed-form-widget-sec-filings-.
Yahoo Finance. “Dell Technologies. Yahoo Finance. Yahoo Finance, 2018. Web. 27 July 2018. https://finance.yahoo.com/quote/DVMT/financials?p=DVMT&guccounter=1.
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