This is not surprising because Dell's home country is the U.S. The other markets represent emerging markets and represent excellent chances for growth in the future. However, they are not yet established. Dell established its core business in the U.S. before it began to branch out into other markets. These secondary markets were established due to a maturing, and rather saturated market in the U.S. They represent a way to continue growth as the U.S. market becomes mature.
At the current time, storage solutions represent only about 2% of total revenue. However, storage solutions are not a part of their core business. They were an additional service that was added after the establishment of the PC business. Their branding is not established on storage solutions. They must evaluate their position regarding this service in the future and determine if their resource might be better spent expanding their core business.
The Asian-Pacific and Japan represent the smallest segment according to regions. Revenues from European nations represent the second least important regional sector. If one only looks at the numbers, it would be easy to advise considering dropping out of these markets and spending more effort building in the more successful U.S. market. This might be the case if the competitive arena in these countries were such that the market was already cornered. However, this is not the case and these expansions represent an attempt to secure Dell's growth status into the future. The Asian-Pacific and Japan are emerging markets. They represent an investment in Dell's growth in the future. Therefore, the assessment of these positions would indicate that they should continue to expand these markets.
Dells' income statement only gives three years for comparison. It provides information for 2004, 2005 and 2006. Dell uses a multiple-step format that separates expenses into various categories. However, it might be noted that the income statement is not very detailed in this respect. A more detailed breakdown would be more useful in the analysis of this company's performance. The single-step statement is easier to analyze at a glance, but it does not allow for detailed ration analysis according to activity.
Dell spends more on sales and general merchandising expenses than on research and development. It only provides information on gross revenue on the income statement. One must refer to other sections of the report to gain a detailed analysis of various revenue streams. The information is provided, but is consolidated on the Income statement. They do not have a category called "other income" on their statement.
Statement of Stockholder's Equity
Dell presents information as far back as 2003 on the Statement of Stockholder's Equity. Changes in employee plans and benefits accounts for the most significant change in Shareholder's equity. Dell only lists common stock and treasure stock on its report. In 2006, it issued 2,818,000 shares of common stock in 2006. They issued 488,00 shares of treasury stock. They did not mention preferred shares on their statement, therefore, it can be assumed that none were issued.
In the financial notes, one finds an explanation of why the company chose to reacquire its own stock. In the beginning of 2002, Dell began to repurchase shares of its common stock as treasure stock. Until that time, Dell retired all of their repurchased shares and recorded them as a reduction in retained earnings. However, Dell accounts for treasury stock using the cost method and includes treasury stock as a component of stockholder's equity. This repurchase represents a change in accounting methods.
Financial Ratios
Dell, Inc.
Gross Profit Margin
Net Profit Margin
Return on Assets
Return on Common Equity
Dividend payout ratio
Earnings per share
Price to earnings
Dell has realized a steady growth in profit margin over the past three years. Its net profit margins are higher than gross margins, but have declined. This would suggest that while sales have increased at a steady pace, expenses have taken a toll on the margins. However, this can be a positive or negative sign depending on the situation. For instance, if they are simply a reflection of increased costs, then they may herald trouble in the future as the company struggles to keep up with rising costs. However, they may also be the result of expenditures to expand the business. This ratio does not tell us much without further information.
Dell did manage to experience outstanding returns on assets on common equity. They do not pay dividends. They have healthy and steadily growing earnings per share. Their price to earnings ratio has seen some volatility,...
Dell demonstrates a healthy prospect for increasing growth in the future, particularly as they expand into emerging markets. They may need to adjust their product mix so that it is more efficient, but the adjustments needed are minor and will not affect the overall health of the company.
Competitor Analysis
In order to address the health of Dell, Inc. one must compare it to its competitors. For this analysis, Apple Computer Inc. will be used.
Apple Computers, Inc.
Gross Profit Margin
Net Profit Margin
Return on Assets
Return on Common Equity
Dividend payout ratio
Earnings per share
Price to earnings
Compared to Dell, Apple appears to be a more profitable company, particularly when one considers the gross profit margin, and Earnings per share. It would appear the Apple is the better value. However, the Net profit margin gives us a clue that they also have high expenditures involved in their revenue generation. It would at first appear that Apple is the better value due to its high return on assets, and earnings per share. However, this should be taken with caution as it may also point to a mishandling of capital. Dell may not produce the rapid growth of Apple, but it offers more stable growth.
Long Lived Assets
Long-term assets are those items such as buildings and equipment that are necessary to the business. They have value, but they also have a certain useful life expectancy when they will have to be replaced, or repaired. As they approach this point, their value decreases. When one compares the long-term assets of Dell and Apple, both companies use straight-line depreciation over the estimated useful lives of the equipment. Equipment is amortized over 5 years. Buildings and other structures are amortized for 30 years. Apple estimates its expense on property and equipment to be 180 million for 2006, 141 million for 2005, and 126 million for 2004. Dell only depreciated assets in the amount of 393,000 in 2006, 224,000 in 2005, and 263,000 in 2004.
Intangible Assets, Cost of Goods Sold
Apple did not recognize any goodwill or impairments on any of its assets over the past three years. Dell did not mention intangible assets in their report, but they did mention them in their notes. Therefore, it can be assumed that there was none of note during the time period. Losses of this type are difficult to foresee, but they may have an impact on the business of both companies in the future.
Both Dell and Apple divide their cost of goods sold (COGS) into Selling, General, and Administrative (S G. And a) and Research and Development (R and D) costs. The costs of goods sold had a direct impact on Dell's margins. They did have an impaired loss due to an acquisition that did not turn out as planned. Dell holds 1,581 worldwide patents and has applied for 1,416 additional patents in 2006. Apple increased R. And D. spending for the 2006-year as compared to 2005. These expenditures are necessary to the development of the company's core business. SG and a expenses for Apple increased by 31% from 2005 to 2006. Inventory costs flows for Apple and Dell are complex due to the varied product offerings. Detailed information on inventory cost flow was not provided for either company.
Inventory turnover for Apple was 63.1 in 2006. Dell's inventory turnover for 2006 was 88.0 Apple's receivables period was 18.8. Dell's receivables period was 13.2. Dell appears to be using its investment in inventory more effectively. This reflects an efficient value chain. This may be due to Dell's direct sales business model that gets the product to the customer without the intermediary.
Summary
When one compares the financial statements of Apple and Dell, it would at first appear as if Apple were the clear leader as far as growth was concerned. However, when one begins to examine their use of assets and efficiency, it becomes apparent that Dell is the clear choice as far as stability is concerned. Dell takes a more conservative approach to risk management and growth strategies. Dell keeps its costs down compared to Apple and this gives it a clear advantage in being able finance its own expansions and investments. Dell may not have soared to the top the way Apple did, but it is seated in a position to experience stable long-term growth for the future.
Financial Statements: A Closer Look
Dell 2006 Apple 2006 Dell 2005 Apple 2005 Dell 2004 Apple 2004 Basic earnings per share for three years 1.49 2.36 1.21 1.64 1.03.36 Diluted earnings per share for three years 1.46 2.27 1.18 1.55 1.01.34 Asset turnover ratio 2.4-1.3…
