Analysis of Dell Corporation and how it’s Stock Can Be a Prospective Investment
Company overview
Dell is a Delaware company that was founded in 1984 by Michael Dell who currently is the company’s Chief Executive Officer (CEO).
The company started as PC’S Limited with a capital of $ 1000. The founder had a vision to change the way technology was designed, produced, marketed and sold. The company’s first computer was built in 1985 and the buyers were offered specialized assistance at their homes when they experienced any problems with the working of the computer. In 1988, Dell had their initial public offer which raised a total of $ 30 million.
This raised the total market capitalization for Dell to $85 million. Up to this time, Dell only produced PCs, but in 1989 they produced the first laptop computer. The first subsidiary of the company was formed in the UK in 1987, with other subsidiaries formed in Ireland, Middle East, other parts of Europe and Africa in 1990. The expansion of the company has been first with branches opening in Asia Pacific and Japan region, Americas region and Europe Region. The headquarters of the company is in Austin, Texas but it has several manufacturing plants in different parts of the world such as Tennessee, China, Ireland, Brazil and Malaysia (Dell, 1994).
Products of Dell Incorporation
Dell produces computers (PCs), software and associated services, laptops, servers and network systems, storage and enterprise systems. Over the years the products and services have continued to grow (Sloane, 2011).
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Dell Inc. Financial Statements
The company’s financial statements for the fiscal years (FY) 2009, 2010 and 2011 have shown a continued growth in the profitability of the company. Dell realized a net revenue growth of 16% from $52.902 billion in 2010 to $61.494 billion in the fiscal year 2011. The revenues of the company in 2009
represented a drop of 13% form $61.1 billion to $52.902 in the FY 2009 The diluted Earnings per share (EPS) increased by 85% from $0.73 to $1.35 in the fiscal year 2011. However, there was a reduction for the earning of the common shareholder in the fiscal year 2010 (8%) as compared with 2009 when the EPS was $1.25. the operating income decreased by 32% in FY 2010 from $3.2 billion in FY 2009 to $2.172 billion.
However, the FY 2011 saw an increase of 58% in the operating income to stand at $3.433 billion at the end of the fiscal year. It is also worth noting that Dell saw a net income growth of 84% from $1.433 billion in 2010 to $2.635 billion in 2011. This stood in sharp contrast to the 2009/10 FY where a reduction from $2.478 billion to $1.433 billion was witnessed. The company ended with $15.1 billion, $11.8 billion and $9.5 billion for the fiscal years 2011, 2010 and 2009 respectively in cash and investment (Brigham & Ehrhardt, 2011)
The market capitalization for Dell as at 2011 stood at $29.25 billion and the total cash per share for the last quarter of FY 2011 stood at $ 7.67 with the book value of the share being $ 4.41 over the same period. Dell had a very high price to book value has put the firm at a position where investors want to invest in it due to the high returns expected. The return on equity (46.9%) for the last five years being higher than the cost of equity has created a high value for the shares. The total current assets of the company have been on the decline over the last three fiscal years.
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However, the total assets have increased from $ 26.5 billion in 2009 to $ 38.599 billion in 2011 (Needles; Powers & Crosson, 2011).
The current ratio of dell for 2011 has been increasing over the year’s form 1.36 in 2009 t0 1.49 in 2011. This showed that the company had a very sound short term financial position of the company. The profitability has also been on an upward trend with the return on total capital increasing by 21% in the fiscal year 2011. The sales of the company have also increased by 7% in 2009 and 12% in 2011. This shows that the strategies that have been employed by the firm are effective thus more people will be willing to invest in the firm.
The asset turnover of the firm which stood at 1.7 was a good sign to the investors since a dollar invested would bring out a higher value than the one invested. The P/E ratio for 2011 stood at 9.3 indicating that the company will grow faster (Brigham & Ehrhardt, 2011).
The sales revenues of the company are projected to go up by about 16% to hit almost $ 75 billion in the next three years of operation. This increase will lead to an increase of up to 13.5% in the earning per share. The earnings per share will surpass the ten dollar mark in the three years preceding2011 fiscal year. The company has undertaken a large diversification in their area of operation thus the revenues of the company will increase further. The increased revenues of the company in the coming three years will further cement the position that there would be a further increase in the earnings per share. An area that will experience maintained growth levels will be the earnings resulting from the fixed assets. This will be brought about by the firms proposed expansion into other areas where they did not operate initially. Current assets, in the next three years, will record an increase in performance.
The return on equity that is held by the shareholders is expected to increase further from the current 46% repurchases of the common stock that the company has been involved in over the preceding fiscal year of 2011. The increases in the current assets will bring about an increase in the current ratio from the current 1.49 to almost 1.67 in the next three years. The company will also experience an increase in the number of finished product due to the increased production capacity brought about by the enlargement of the firm’s portfolio.
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There will be need for increased storage space and other supply logistics. An increase in the asset turnover from the current 1.7 to about 2.1 will be realized in the next three years due to increases in sales brought about by an increase in the firm’s efficiency in production. The company has also engaged in a massive repayment of debts thus the liabilities of the company will decline in the next three years. The position of liabilities will also be made better due to the repurchases of common stocks (Needles; Powers & Crosson, 2011).
Stock price analysis
Source: Quotemedia. Com (Author generated).
The price of Dell shares were slightly affected by thee global financial crisis of 2008 with the Dell shares dipping from an all time of 30 dollars in 2007 to almost eight dollars in the first quarter of 2009. However, due to the reorganization of Dell’s operations in 2009 from the four regions to a customer focused approach, there has been a noted upward trend. The prices of the stock have increased steadily due to this new operational strategies employed by the firm. The share again rose to $ 18 in the last quarter of 2009.
Source: Chartoasis.com
S & P 500 is the most widely regarded measure of the market in United States although the company only has about 75% of the equities in the market. The movement of S & P 500 indices have been consistent with the stock prices of Dell Inc. the two firms were almost similarly affected by the 2008 economic downturn. This is shown by the dip in the curves for the respective firms in the beginning of the first quarter of 2009. Due to the consistent rise in the prices of stock for Dell, it is an area where an investor keen on making return should consider.
Conclusion
If anyone were to invest in the technology industry, Dell would be the best option for them due to the strategies that they have. The profit making capacity of the company will surely increase due to the increasing market share Dell has. The returns to the investors will also increase as noted by the upward rise in the Earning per Share (EPS) in the past couple of years.
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References
Brigham, E. &; Ehrhardt, M. (2011).
_Financial management: theory and practice_. Mason, OH: South-Western Cengage Learning.
Dell, M. (1994) “Making the Right Choices for the New Consumer”, _Managing Service Quality_, Vol. 4 Iss: 2, pp.22 – 25.
Needles, B.; Powers, M. & Crosson, S. (2011).
_Financial and managerial accounting_. Mason, OH: South-Western Cengage Learning.
Sloane, P. (2011) “The brave new world of open innovation”, _Strategic Direction_, Vol. 27 Iss: 5, pp.3 – 4
