MANAGERIAL FINANCE 343 Ratio Analysis Project Use data from Mergent Online (also called FISOnline) database to complete the project associated with your company and its competitor. The database can be accessed through the Library’s website. (1) (10 pts) Overview. In a paragraph, describe the industry in which your company operates. For example, you might discuss the following: • Key competitors, Industry trends, Industry concerns and risk, Industry opportunities (2) (12 pts) Ratios. Present the following for your company using the most recent three years available on Mergent Online (use a table format); Quick Ratio Current Ratio Total Asset Turnover Inventory Turnover Profit Margin Return on Assets Return on Equity Total Debt to Equity PE Ratio Market Capitalization (3) (15 pts) Ratio Analysis. For the following three ratios, briefly indicate the meaning of the values you found in #2 and the trend for the company over the three year period. A) Inventory Turnover, B) Profit Margin, C) Return on Assets. (4) (25 pts) Comparison to Competitor. How does your company compare to its competitors in terms of liquidity, use of leverage, efficiency, profitability, and shareholder value? (5) (10) DuPont Analysis. Complete a DuPont analysis of your company and discuss its outcome. Write a brief (one paragraph) statement to the CEO of your company indicating the strengths and weaknesses of your company, and suggesting some actions that can be taken to improve the weaknesses. Format (8 pts) _ Grammar is important. Use spell and grammar check before submitting. _ Include the items requested above, in the order listed. Use the bolded words for each item as a section header before presenting the requested information. _ Put your name on all files/documents submitted. 1 MANAGERIAL FINANCE 343 Excel Project Use data from your Ratio Analysis Project. (1) (5 pts) Company Trend. In Excel, create a line chart to show the company’s performance for profit margin over the last three year period. Appropriately label and title the chart. (2) (5 pts) Competitors’ Trend. In Excel, create a line chart to show the competitors’ performance for profit margin over the last three year period. Appropriately label and title the chart. (3) (5 pts) Competitor Comparison. In Excel, create a columnar bar chart to highlight a comparison between the company and all competitors for the percentage of debt in the firm’s capital structure in 2013. (4) (5 pts) Including a Text Box. In Excel, create a text box where you will write a brief summary for management in which you explain the trend in company performance and the comparison to competitors by referring to the charts you have created. Format the document so that all items print on one page. Landscape and portrait print are equally acceptable. Graded for grammar. Select one of the Potential Companies, and compare it with the Competitor to complete your project. Note: Do not include data used to create charts in the printable area. Potential Companies: Competitor: Apple (AAPL) Microsoft (MSFT) Under Armour (UA) Nike (NKE) 2 NIKE Inc (NYS: NKE) Exchange rate used is that of the Year End reported date Standardized Annual Balance Sheet Report Date Currency Audit Status Consolidated Scale Cash & Equivalents Short Term Investments Cash & Equivs & ST Investments Receivables (ST) Inventories Current Tax Assets Other Current Assets Total Current Assets Gross Property Plant & Equip Accumulated Depreciation Net Property Plant & Equip Intangible Assets Other Assets Total Assets Accounts Payable & Accrued Exps Accounts Payable Accrued Expenses Current Debt Discontinued Ops (ST Liab) Other Current Liabilities Total Current Liabilities LT Debt & Leases Other Liabilities Total Liabilities Common Share Capital Additional Paid-In Capital Retained Earnings Accum Other Comprehensive Income For Curr Trans (BS) Other Equity Total Equity Total Liabilities & Equity 05/31/2014 05/31/2013 USD Not Qualified USD Not Qualified Yes Thousands Yes Thousands 2220000 2922000 5142000 3337000 2628000 5965000 3434000 3947000 355000 818000 13696000 6220000 3386000 2834000 413000 1651000 18594000 4421000 1930000 2491000 174000 432000 5027000 1199000 1544000 7770000 3000 5865000 4871000 85000 9000 -9000 10824000 18594000 3117000 3434000 308000 802000 13626000 5500000 3048000 2452000 513000 993000 17584000 3632000 1646000 1986000 178000 18000 98000 3926000 1210000 1292000 6428000 3000 5184000 5695000 274000 0 11156000 17584000 05/31/2012 USD Not Qualified Yes Thousands 2317000 1440000 3757000 3280000 3350000 274000 870000 11531000 5244000 2965000 2279000 736000 919000 15465000 3641000 1588000 2053000 157000 67000 3865000 228000 991000 5084000 3000 4641000 5588000 149000 0 10381000 15465000 Quick ratio current ratio total asset turnover inventory turnover profit margin return on assets return on equity total debt to equity PE ratio Market Capitalization 2014 2013 2012 5/31/2014 1.94 2.72 1.50 3.89 0.10 0.14 0.25 0.72 25.22 66911700.00 5/31/2013 2.60 3.47 1.44 4.16 0.10 0.14 0.22 0.58 22.26 55124040.00 NKE Pice per share 76.91 61.66 108.18 NIKE Inc (NYS: NKE) Exchange rate used is that of the Year End reported date 5/31/2012 2.12 2.98 1.56 4.08 0.09 0.14 0.21 0.49 44.70 99092880.00 Standardized Annual Income Statement Report Date Currency Audit Status 05/31/2014 USD Not Qualified Consolidated Scale Total Revenue Direct Costs Gross Profit Selling General & Admin Other Operating Expense Total Indirect Operating Costs Operating Income Interest Income Other Non-Operating Income Total Non-Operating Income Earnings Before Tax Taxation Earnings After Tax Discontinued Operations Extraordinary Items Accounting Changes Net Income Preference Dividends & Similar Net Income to Common Average Shares Basic EPS Net Basic EPS Continuing Basic Average Shares Diluted EPS Net Diluted EPS Continuing Diluted Shares Outstanding Yes Thousands 27799000 15353000 12446000 8766000 103000 8869000 3577000 -33000 0 -33000 3544000 851000 2693000 0 0 2693000 0 2693000 883400 3.05 3.05 905800 2.97 2.97 870000 05/31/2013 USD Not Qualified 05/31/2012 USD Not Qualified Yes Thousands 25313000 14279000 11034000 7780000 -15000 7765000 3269000 3000 0 3000 3272000 808000 2464000 21000 0 0 2485000 0 2485000 897300 2.77 2.75 916400 2.71 2.69 894000 Yes Thousands 24128000 13657000 10471000 7431000 54000 7485000 2986000 -3000 0 -3000 2983000 760000 0 0 2223000 0 2223000 920000 2.42 2.42 939600 2.37 2.37 916000 Under Armour Inc (NYS: UA) Exchange rate used is that of the Year End reported date Standardized Annual Balance Sheet Report Date Currency Audit Status Consolidated Scale Cash & Equivalents Cash & Equivs & ST Investments Receivables (ST) Inventories Current Tax Assets Other Current Assets Total Current Assets Gross Property Plant & Equip Accumulated Depreciation Net Property Plant & Equip Intangible Assets Deferred LT Assets Other Assets Total Assets Accounts Payable & Accrued Exps Accounts Payable Accrued Expenses Current Debt Other Current Liabilities Total Current Liabilities LT Debt & Leases Other Liabilities Total Liabilities Common Share Capital Additional Paid-In Capital Retained Earnings Accum Other Comprehensive Income Other Equity Total Equity Total Liabilities & Equity 12/31/201 4 USD Not Qualified 12/31/201 3 USD Not Qualified 12/31/201 2 USD Not Qualified Yes Thousan ds 593175 593175 279835 536714 52498 87177 1549399 522376 216812 305564 149486 33570 57064 2095083 358113 210432 147681 28951 34563 421627 255250 67906 744783 71 508350 856687 -14808 0 1350300 2095083 Yes Thousan ds 347489 347489 209952 469006 38377 63987 1128811 396086 172134 223952 146341 31094 47543 1577741 299185 165456 133729 104972 22473 426630 47951 49806 524387 35 397283 653842 2194 0 1053354 1577741 Yes Thousan ds 341841 341841 175524 319286 23051 43896 903598 326121 145271 180850 4483 22606 45546 1157083 228766 143689 85077 9132 14330 252228 52757 35176 340161 35 321338 493181 2368 0 816922 1157083 quick ratio current ratio total asset turnover inventory turnover profit margin return on assets return on equity total debt to equity PE ratio Market Capitalization 12/31/2014 12/31/2013 12/31/2012 2.40 1.55 2.32 3.67 2.65 3.58 1.43 1.44 1.55 2.93 2.55 2.99 0.07 0.07 0.07 0.10 0.10 0.11 0.15 0.15 0.16 0.55 0.50 0.42 49.52 113.38 109.52 10380372.30 18475186.21 14226558.19 2014 2013 2012 nike Cash & Equivalents under Armour Cash & Equivalents 2014 2220000 593175 UA price per share 48.53 87.3 67.9 2013 3337000 347489 2012 2317000 341841 Under Armour Inc (NYS: UA) Exchange rate used is that of the Year End reported date Standardized Annual Income Statement Report Date Currency Audit Status Consolidated Scale Sales Revenue Other Revenue Total Revenue Direct Costs Gross Profit Selling General & Admin Other Operating Expense Total Indirect Operating Costs Operating Income Interest Income Other Non-Operating Income Total Non-Operating Income Earnings Before Tax Taxation Extraordinary Items Accounting Changes Net Income Preference Dividends & Similar Net Income to Common Average Shares Basic EPS Net Basic EPS Continuing Basic Average Shares Diluted EPS Net Diluted EPS Continuing Diluted Shares Outstanding 12/31/201 4 USD Not Qualified 12/31/201 3 USD Not Qualified 12/31/201 2 USD Not Qualified Yes Thousan ds 2997932 86438 3084370 1572164 1512206 1158251 0 1158251 353955 -5335 -6410 -11745 342210 134168 0 0 208042 0 208042 213227 0.98 0.98 219380 0.95 0.95 213896 Yes Thousan ds 2277073 54978 2332051 1195381 1136670 871572 0 871572 265098 -2933 -1172 -4105 260993 98663 0 0 162330 0 162330 210696 0.77 0.77 215958 0.75 0.75 211628.7 Yes Thousan ds 1790140 44781 1834921 955624 879297 670602 0 670602 208695 -5183 -73 -5256 203439 74661 0 0 128778 0 128778 208686 0.62 0.62 212760 0.61 0.61 209522.2 Financial Statement Analysis Paper Example 1: Dell Computer Dell Inc. Current Year Income Statement Revenue Cost of Goods Sold Gross Profit Prior Year 3 Years Ago $ Percent $ Percent $ Percent 61,494 49,128 12,366 100.0% 79.9% 20.1% 52,902 42,789 10,113 100.0% 80.9% 19.1% 61,101 49,375 11,726 100.0% 80.8% 19.2% 661 1.1% 624 1.2% 663 1.1% 7,302 0 0 11.9% 0.0% 0.0% 6,465 0 0 12.2% 0.0% 0.0% 7,102 0 0 11.6% 0.0% 0.0% Operating Income Depreciation Expense Other Income/Expense 4,403 970 116 7.2% 1.6% 0.2% 3,024 852 12 5.7% 1.6% 0.0% 3,961 769 47 6.5% 1.3% 0.1% EBIT Interest Expense Tax Expense Income from Cont Operations 3,549 199 715 2,635 5.8% 0.3% 1.2% 4.3% 2,184 160 591 1,433 4.1% 0.3% 1.1% 2.7% 3,417 93 846 2,478 5.6% 0.2% 1.4% 4.1% 2,635 4.3% 1,433 2.7% 2,478 4.1% Balance Sheet Cash Short Term Investments Accounts Receivable Inventory Other Current Assets Total Current Assets 13,913 452 10,136 1,301 3,219 29,021 36.0% 1.2% 26.3% 3.4% 8.3% 75.2% 10,635 373 8,543 1,051 3,643 24,245 31.6% 1.1% 25.4% 3.1% 10.8% 72.0% 8,352 740 6,443 867 3,749 20,151 31.5% 2.8% 24.3% 3.3% 14.1% 76.0% Long Term Investments PP&E Net Goodwill Intangibles Other Assets 1,503 1,953 4,365 1,495 262 3.9% 5.1% 11.3% 3.9% 0.7% 1,113 2,181 4,074 1,694 345 3.3% 6.5% 12.1% 5.0% 1.0% 954 2,277 1,737 724 657 3.6% 8.6% 6.6% 2.7% 2.5% 38,599 100.0% 33,652 100.0% 26,500 100.0% Total Assets L P M A S Net Income E R&D Selling General & Administrative Non Recurring Others 15,474 851 3,158 19,483 40.1% 2.2% 8.2% 50.5% 15,257 663 3,040 18,960 45.3% 2.0% 9.0% 56.3% 12,045 113 2,701 14,859 45.5% 0.4% 10.2% 56.1% 5,146 6,204 0 13.3% 16.1% 0.0% 3,417 5,634 0 10.2% 16.7% 0.0% 1,898 5,472 0 7.2% 20.6% 0.0% Total Liabilities 30,833 79.9% 28,011 83.2% 22,229 83.9% Preferred Stock Common Stock Additional Paid In Capital Retained Earnings 0 11,797 0 24,744 28,704 -71 0 11,189 0 20,677 0.0% 42.2% 0.0% 78.0% -27,904 309 -105.3% 1.2% 4,271 16.1% Treasury Stock (-) Other Equity 7,766 20.1% 5,641 16.8% -13.4% -42.2% 27.0% -0.1% -15.9% -3.8% 6.6 41.8 31.5 7.1 44.6 24.3 8.6 48.2 26.8 4.3% 7.3% 39.3% 2.7% 4.8% 28.9% 4.1% 9.2% 61.9% 1.49 1.42 1.28 1.22 1.36 1.30 0.80 0.83 0.84 17.83 13.65 36.74 A 16.2% 83.9% 14.7% S RATIO ANALYSIS Growth Ratios Sales Growth Income Growth Asset Growth Activity Ratios Receivable Turnover Inventory Turnover Fixed Asset Turnover Profit Ratios Profit Margin Return on Assets Return on Equity Liquidity Ratios Current Ratio Quick Ratio Solvency Ratios Debt to Total Assets Times Interest Earned (Accrual) M P Total Stockholders' Equity 0 11,472 0 22,110 27,904 -37 E Long Term Debt Other Liabilities Minority Interest L Accounts Payable Short/Current L.T. Debt Other Current Liabilities Total Current Liabilities Industry Measures Product Revenue Services Revenue Total Revenue Jan-11 Jan-10 Jan-09 $ 50,002.0 81.31% $ 43,697 82.60% $ 52,337 85.66% $ 11,492.0 18.69% $ 9,205 17.40% $ 8,764 14.34% $ 61,494.0 100.00% $ 52,902 100.00% $ 61,101 100.00% Revenues come from the sale of Dell’s products and services. Revenues increased a combined 16% from January 2010 to January 2011 primarily because of the recovery in the economy. The health of the economy is critical for the company because its products are not primary products; so during a recession, people will rather save money for food than buy a E computer. This explains the big decline in revenues for the 2009 fiscal year (a 13.4% drop L compared to the previous year). The increase in 2010 is also due to a change in business strategy. P Dell is growing its enterprise solutions and services business which changed the revenue stream M of the company. Services revenue has weighted more on total revenues year after year. It went A from 14.3% of revenues in January 2009 to 18.7% of revenues in January 2011. Also, services S revenue has been profitable with a 25% growth in 2010 and 5% growth in 2009. (Part 2, Item 7, Form 10-K, Dell Inc., January 2011) Cost of goods and services have been relatively stable as a percentage of revenue for the past three years. Other expenses such as selling and administrative expenses, R&D expenses, depreciation expenses and more have also been relatively constant in the last three years. However, the company did have higher costs on a dollar basis. This increase in amortization of intangible assets and other cost is due to the increase in intangible assets from the Perot Systems in Fiscal 2010. Also, the company had a migration to contract manufacturers and closures of certain manufacturing facilities that caused an increase in severance and facility action costs. Even with all these value increases, the company has done a good job keeping their costs stable as a percentage of revenues. Dell is well managed and knows how to control their costs. The company is on top of every detail and there are no surprise costs to harm the company. (Part 2, Item 7, Form 10-K, Dell Inc. 2011) The net income performance of the company has been excellent for fiscal 2011 with an 84% increase from the previous year. This big increase in net income resulted in a 1.6% growth in profit margin and a 2.5% growth in ROA (return on asset). Higher revenues and good cost control are responsible for these growths. Another reason for the growth in net income is the change in the business operation of the company. Its service operations are expanding and have a E lower cost than manufacturing the products. Fiscal 2010 had a decrease in net income of 42.2% L mainly due to the drop in revenue and the acquisition of Perot Systems. Dell is planning to keep expanding specially on the services aspect of their business, which will help the company on the M P long run. (Part 2, Item 7, Form 10-K, Dell Inc. 2011) Current assets accounts increased $4,776 billion from the previous year, from A representing 72% of total assets in fiscal 2010 to 75.2% in fiscal 2011 (a 3.2% growth). The cash S and cash equivalent account is mostly responsible for this change as the account rose by more than $3 billion or 4.4% of total assets. The company recognizes all highly liquid investments, including credit card receivables due from banks, with original maturities of three months or less at date of purchase. This rise is explained by an increase in revenues so cash provided by operations, and mainly by a decrease in cash used in investing activities. Cash used for investing activities totaled $1.165 billion in fiscal 2011, a $2,644 billion drop from fiscal 2010. The decrease is primarily due to the lack of material importance for the acquisitions in fiscal 2011 compared to the acquisition of Perot Systems in fiscal 2010. This also reflects lower proceeds from sales of investments and property (partly offset by lower capital expenditures). (Part 2, Item 8 & 9, Form 10-K, Dell Inc. 2011) In general, the company had a good fiscal year. It improved its ability to generate profit. All three of the main profitability’s ratio (profit margin, return on assets and return on equity) have increased from the previous year; it means that the company is using its resources more efficiently. Contingencies such as lawsuits and federal, state and local regulations are reasonably possible because they are not in Dell’s control and can occur at any time; the company believes that they will have a material adverse effect on its financial condition or results of operations if E some of them occur. Also, the company received an unqualified opinion by its auditor, L PricewaterhouseCoopers LLP, who is responsible to obtain reasonable assurance about whether the financial statement are free of material misstatement and verify the internal control of Dell M P over financial reporting. (Part 2, Item 8, Form 10-K, Dell Inc. 2011) The property, plant and equipment (PPE) account is not very heavy in the company’s A balance sheet. It only represents 5.1% of Dell’s total assets. The company uses lease and cash to S acquire PPE. As of January 2011, Dell had approximately 18.1 million square feet of office, manufacturing, and warehouse space worldwide, with 8.3 million of these square feet located in the U.S. Also, 68% of these square feet are owned by Dell and the rest of the 32% are leased. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which range from ten to thirty years for buildings and two to five years for all other assets. Leasehold improvements are amortized over the shorter of five years or the lease term. During Fiscal 2011, the company closed a manufacturing plant in Winston-Salem (North Carolina), consolidated space on their Austin (Texas) campus that allowed them to close one building, and sold their fulfillment center in Nashville (Tennessee). Currently, a business center in Coimbatore, India and a data center in Washington are under construction. The company has also announced the sale of its manufacturing facility in Lodz, Poland. All these activities during fiscal 2011 resulted to a drop of 1.4% in PPE. The fixed asset turnover ratio is 31.5 times, compared to 24.3times in the previous year. This big jump shows that the company is using its fixed assets more efficiently to generate revenue and it’s a positive aspect for the future. The company is increasing revenues by offering various services that require less fixed assets. It’s a change in their business operations and a shift of their revenue stream. (Part 1 & 2, Item 2 & 8, Form 10-K, Dell Inc. 2011) E Another strong aspect of the company’s operations is its liquidity. As current assets L increased and current liabilities decreased, both current ratio and quick ratio increased from 1.28 and 1.22 in fiscal 2010 to 1.49 and 1.42 respectively. On a dollar standpoint current liabilities M P stayed relatively stable. However, due the increase in total assets, current liabilities decreased 5.8% as percentage of total assets. These changes help Dell become more liquid and this is A definitely an advantage. (Part 2, Item 8, Form 10-K, Dell Inc. 2011) S The Company generally borrows on a long-term basis and is exposed to the impact of interest rate changes and foreign currency fluctuations. The fair value of its debt obligations at January 28, 2011 totaled $5.1 billion, compared with $3.4 billion at January 29, 2010. The net increase in fiscal 2011 was primarily due to net issuances of approximately $1.5 billion. No debt is maturing in fiscal 2012. This gives the company a little room to breathe and not issue any commercial paper or long-term debt to refinance maturing debts. The Company uses derivative instruments such as forward contracts and purchased options to hedge certain foreign currency exposures, and interest rate swaps to manage the exposure of its debt portfolio to interest rate risk. As stated in its 10-K document: “Dell's objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge the exposures, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. Dell assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative and recognizes any ineffective portion of the hedge, as well as amounts not included in the assessment of effectiveness, in earnings as a component of interest and other, net.” (Part 2, Item 8, Note 5, Form 10-K, Dell Inc. 2011) The company’s stockholder’s equity went up $2 billion. This increase is due to an increase in retained earning. As net income increased more than the stockholder’s equity, ROE E (return on equity) went from 28.9% in fiscal 2010 to 39.3% in fiscal 2011. During this fiscal L year, Dell also bought back $800 million of shares which increased its level of treasury stock. Dell doesn’t pay dividends so the stockholders can make profit in the market with stock price S A M P variations. (Part 2, Item 8, Form 10-K, Dell Inc. 2011) Financial Statement Analysis Paper Example 1: Dell Computer Dell Inc. Current Year Income Statement Revenue Cost of Goods Sold Gross Profit Prior Year 3 Years Ago $ Percent $ Percent $ Percent 61,494 49,128 12,366 100.0% 79.9% 20.1% 52,902 42,789 10,113 100.0% 80.9% 19.1% 61,101 49,375 11,726 100.0% 80.8% 19.2% 661 1.1% 624 1.2% 663 1.1% 7,302 0 0 11.9% 0.0% 0.0% 6,465 0 0 12.2% 0.0% 0.0% 7,102 0 0 11.6% 0.0% 0.0% Operating Income Depreciation Expense Other Income/Expense 4,403 970 116 7.2% 1.6% 0.2% 3,024 852 12 5.7% 1.6% 0.0% 3,961 769 47 6.5% 1.3% 0.1% EBIT Interest Expense Tax Expense Income from Cont Operations 3,549 199 715 2,635 5.8% 0.3% 1.2% 4.3% 2,184 160 591 1,433 4.1% 0.3% 1.1% 2.7% 3,417 93 846 2,478 5.6% 0.2% 1.4% 4.1% 2,635 4.3% 1,433 2.7% 2,478 4.1% Balance Sheet Cash Short Term Investments Accounts Receivable Inventory Other Current Assets Total Current Assets 13,913 452 10,136 1,301 3,219 29,021 36.0% 1.2% 26.3% 3.4% 8.3% 75.2% 10,635 373 8,543 1,051 3,643 24,245 31.6% 1.1% 25.4% 3.1% 10.8% 72.0% 8,352 740 6,443 867 3,749 20,151 31.5% 2.8% 24.3% 3.3% 14.1% 76.0% Long Term Investments PP&E Net Goodwill Intangibles Other Assets 1,503 1,953 4,365 1,495 262 3.9% 5.1% 11.3% 3.9% 0.7% 1,113 2,181 4,074 1,694 345 3.3% 6.5% 12.1% 5.0% 1.0% 954 2,277 1,737 724 657 3.6% 8.6% 6.6% 2.7% 2.5% 38,599 100.0% 33,652 100.0% 26,500 100.0% Total Assets L P M A S Net Income E R&D Selling General & Administrative Non Recurring Others 15,474 851 3,158 19,483 40.1% 2.2% 8.2% 50.5% 15,257 663 3,040 18,960 45.3% 2.0% 9.0% 56.3% 12,045 113 2,701 14,859 45.5% 0.4% 10.2% 56.1% 5,146 6,204 0 13.3% 16.1% 0.0% 3,417 5,634 0 10.2% 16.7% 0.0% 1,898 5,472 0 7.2% 20.6% 0.0% Total Liabilities 30,833 79.9% 28,011 83.2% 22,229 83.9% Preferred Stock Common Stock Additional Paid In Capital Retained Earnings 0 11,797 0 24,744 28,704 -71 0 11,189 0 20,677 0.0% 42.2% 0.0% 78.0% -27,904 309 -105.3% 1.2% 4,271 16.1% Treasury Stock (-) Other Equity 7,766 20.1% 5,641 16.8% -13.4% -42.2% 27.0% -0.1% -15.9% -3.8% 6.6 41.8 31.5 7.1 44.6 24.3 8.6 48.2 26.8 4.3% 7.3% 39.3% 2.7% 4.8% 28.9% 4.1% 9.2% 61.9% 1.49 1.42 1.28 1.22 1.36 1.30 0.80 0.83 0.84 17.83 13.65 36.74 A 16.2% 83.9% 14.7% S RATIO ANALYSIS Growth Ratios Sales Growth Income Growth Asset Growth Activity Ratios Receivable Turnover Inventory Turnover Fixed Asset Turnover Profit Ratios Profit Margin Return on Assets Return on Equity Liquidity Ratios Current Ratio Quick Ratio Solvency Ratios Debt to Total Assets Times Interest Earned (Accrual) M P Total Stockholders' Equity 0 11,472 0 22,110 27,904 -37 E Long Term Debt Other Liabilities Minority Interest L Accounts Payable Short/Current L.T. Debt Other Current Liabilities Total Current Liabilities Industry Measures Product Revenue Services Revenue Total Revenue Jan-11 Jan-10 Jan-09 $ 50,002.0 81.31% $ 43,697 82.60% $ 52,337 85.66% $ 11,492.0 18.69% $ 9,205 17.40% $ 8,764 14.34% $ 61,494.0 100.00% $ 52,902 100.00% $ 61,101 100.00% Revenues come from the sale of Dell’s products and services. Revenues increased a combined 16% from January 2010 to January 2011 primarily because of the recovery in the economy. The health of the economy is critical for the company because its products are not primary products; so during a recession, people will rather save money for food than buy a E computer. This explains the big decline in revenues for the 2009 fiscal year (a 13.4% drop L compared to the previous year). The increase in 2010 is also due to a change in business strategy. P Dell is growing its enterprise solutions and services business which changed the revenue stream M of the company. Services revenue has weighted more on total revenues year after year. It went A from 14.3% of revenues in January 2009 to 18.7% of revenues in January 2011. Also, services S revenue has been profitable with a 25% growth in 2010 and 5% growth in 2009. (Part 2, Item 7, Form 10-K, Dell Inc., January 2011) Cost of goods and services have been relatively stable as a percentage of revenue for the past three years. Other expenses such as selling and administrative expenses, R&D expenses, depreciation expenses and more have also been relatively constant in the last three years. However, the company did have higher costs on a dollar basis. This increase in amortization of intangible assets and other cost is due to the increase in intangible assets from the Perot Systems in Fiscal 2010. Also, the company had a migration to contract manufacturers and closures of certain manufacturing facilities that caused an increase in severance and facility action costs. Even with all these value increases, the company has done a good job keeping their costs stable as a percentage of revenues. Dell is well managed and knows how to control their costs. The company is on top of every detail and there are no surprise costs to harm the company. (Part 2, Item 7, Form 10-K, Dell Inc. 2011) The net income performance of the company has been excellent for fiscal 2011 with an 84% increase from the previous year. This big increase in net income resulted in a 1.6% growth in profit margin and a 2.5% growth in ROA (return on asset). Higher revenues and good cost control are responsible for these growths. Another reason for the growth in net income is the change in the business operation of the company. Its service operations are expanding and have a E lower cost than manufacturing the products. Fiscal 2010 had a decrease in net income of 42.2% L mainly due to the drop in revenue and the acquisition of Perot Systems. Dell is planning to keep expanding specially on the services aspect of their business, which will help the company on the M P long run. (Part 2, Item 7, Form 10-K, Dell Inc. 2011) Current assets accounts increased $4,776 billion from the previous year, from A representing 72% of total assets in fiscal 2010 to 75.2% in fiscal 2011 (a 3.2% growth). The cash S and cash equivalent account is mostly responsible for this change as the account rose by more than $3 billion or 4.4% of total assets. The company recognizes all highly liquid investments, including credit card receivables due from banks, with original maturities of three months or less at date of purchase. This rise is explained by an increase in revenues so cash provided by operations, and mainly by a decrease in cash used in investing activities. Cash used for investing activities totaled $1.165 billion in fiscal 2011, a $2,644 billion drop from fiscal 2010. The decrease is primarily due to the lack of material importance for the acquisitions in fiscal 2011 compared to the acquisition of Perot Systems in fiscal 2010. This also reflects lower proceeds from sales of investments and property (partly offset by lower capital expenditures). (Part 2, Item 8 & 9, Form 10-K, Dell Inc. 2011) In general, the company had a good fiscal year. It improved its ability to generate profit. All three of the main profitability’s ratio (profit margin, return on assets and return on equity) have increased from the previous year; it means that the company is using its resources more efficiently. Contingencies such as lawsuits and federal, state and local regulations are reasonably possible because they are not in Dell’s control and can occur at any time; the company believes that they will have a material adverse effect on its financial condition or results of operations if E some of them occur. Also, the company received an unqualified opinion by its auditor, L PricewaterhouseCoopers LLP, who is responsible to obtain reasonable assurance about whether the financial statement are free of material misstatement and verify the internal control of Dell M P over financial reporting. (Part 2, Item 8, Form 10-K, Dell Inc. 2011) The property, plant and equipment (PPE) account is not very heavy in the company’s A balance sheet. It only represents 5.1% of Dell’s total assets. The company uses lease and cash to S acquire PPE. As of January 2011, Dell had approximately 18.1 million square feet of office, manufacturing, and warehouse space worldwide, with 8.3 million of these square feet located in the U.S. Also, 68% of these square feet are owned by Dell and the rest of the 32% are leased. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which range from ten to thirty years for buildings and two to five years for all other assets. Leasehold improvements are amortized over the shorter of five years or the lease term. During Fiscal 2011, the company closed a manufacturing plant in Winston-Salem (North Carolina), consolidated space on their Austin (Texas) campus that allowed them to close one building, and sold their fulfillment center in Nashville (Tennessee). Currently, a business center in Coimbatore, India and a data center in Washington are under construction. The company has also announced the sale of its manufacturing facility in Lodz, Poland. All these activities during fiscal 2011 resulted to a drop of 1.4% in PPE. The fixed asset turnover ratio is 31.5 times, compared to 24.3times in the previous year. This big jump shows that the company is using its fixed assets more efficiently to generate revenue and it’s a positive aspect for the future. The company is increasing revenues by offering various services that require less fixed assets. It’s a change in their business operations and a shift of their revenue stream. (Part 1 & 2, Item 2 & 8, Form 10-K, Dell Inc. 2011) E Another strong aspect of the company’s operations is its liquidity. As current assets L increased and current liabilities decreased, both current ratio and quick ratio increased from 1.28 and 1.22 in fiscal 2010 to 1.49 and 1.42 respectively. On a dollar standpoint current liabilities M P stayed relatively stable. However, due the increase in total assets, current liabilities decreased 5.8% as percentage of total assets. These changes help Dell become more liquid and this is A definitely an advantage. (Part 2, Item 8, Form 10-K, Dell Inc. 2011) S The Company generally borrows on a long-term basis and is exposed to the impact of interest rate changes and foreign currency fluctuations. The fair value of its debt obligations at January 28, 2011 totaled $5.1 billion, compared with $3.4 billion at January 29, 2010. The net increase in fiscal 2011 was primarily due to net issuances of approximately $1.5 billion. No debt is maturing in fiscal 2012. This gives the company a little room to breathe and not issue any commercial paper or long-term debt to refinance maturing debts. The Company uses derivative instruments such as forward contracts and purchased options to hedge certain foreign currency exposures, and interest rate swaps to manage the exposure of its debt portfolio to interest rate risk. As stated in its 10-K document: “Dell's objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge the exposures, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. Dell assesses hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative and recognizes any ineffective portion of the hedge, as well as amounts not included in the assessment of effectiveness, in earnings as a component of interest and other, net.” (Part 2, Item 8, Note 5, Form 10-K, Dell Inc. 2011) The company’s stockholder’s equity went up $2 billion. This increase is due to an increase in retained earning. As net income increased more than the stockholder’s equity, ROE E (return on equity) went from 28.9% in fiscal 2010 to 39.3% in fiscal 2011. During this fiscal L year, Dell also bought back $800 million of shares which increased its level of treasury stock. Dell doesn’t pay dividends so the stockholders can make profit in the market with stock price S A M P variations. (Part 2, Item 8, Form 10-K, Dell Inc. 2011)