Dell computer corp. produces retails and repairs personal computers. The company advertises its products directly to the consumers and assembles a computer after having received a confirmatory order from the client. This build-to-order model allows Dell to invest minimally in the working capital of the company, compared to other industry players. It also allows Dell to enjoy the advantages associated with reduced factor prices and to launch novice products more speedily. Dell has developed rapidly and has also been capable of funding the growth and development with its effective utilization of working capital and productivity. The current case sheds light on the significance of working capital management in a high-growth company.
Balance Sheet, Income Statement, Cash Flows 1996, Cash Flows 1997, Working Capital, Projections 1994, 1995, 1996
How was Dell working capital policy a competitive advantage?
How did Dell fund its 52% growth in 1996?
Assuming Dell sales will grow 50% in 1997, how might the company fund its growth internally?
How much would working capital need to be reduced and/or profit margin increased?
What steps do you recommend the company take?
How would your answers to Question 3 change if Dell also repurchased $500 million of common stock and repaid its long-term debt?