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).
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. 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. 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.
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
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