Financial Performance of Dell Incorporation
The net profit derived from every $100 of sales revenue of Dell Incorporation is lower than that of Hewlett Packard Company. This implies that Dell Incorporation charges either a lower selling price or that the company is less efficient in its operations. However, the return on assets and return on equity of Dell Incorporation are far better than those of the other firm. The return on equity computer under the DuPont Analysis is also in favor of Dell Incorporation, whose ratio exceeds that of Hewlett Packard Company by 8%.
A high percentage in such financial ratios is always desirable, namely return on assets because it implies that the profitability of the company is substantially safe from unseen changes in the external business environment, like new competitive measures, economic slowdown and more With respect to the utilization of the firm’s fixed assets, Dell Incorporation holds supremacy on such facet when compared with Hewlett Packard Company. The skill in generating sales from the fixed assets was outstanding for Dell Incorporation in comparison to the other corporation.
A sound growth of 27.
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18% is also noted in the earnings estimate of the company. This sheds further positive light on Dell Incorporation financial performance. 1. 1 Financial Position of Dell Incorporation The ability of the current assets and most liquid asset to cover the current liabilities is also in favor of Dell Incorporation. This is due to a higher current and quick ratio for such company. Dell Incorporation also portrays a better working capital management both in terms of accounts receivable and inventory.
This is due to a higher receivable and inventory turnover. A high receivables turnover ratio indicates that the ability of the company to attain the cash receipts from debtors is good either by effective credit control policies or appropriate maintenance of cash sales. A high inventory turnover shows a good capability in selling inventory. 1. 2 Financial Stability of Dell Incorporation The percentage of total assets financed through debt is lower for Dell Incorporation than the other company as shown by the total debt to total assets ratio.
This is a positive element for the financial stability of the organization. In addition, the gearing of Dell Incorporation is lower as indicated by the debt to equity ratio. Lower debt is normally a desirable element because debt finance encompasses higher financial commitments and thus holds greater risk. In practice, normally a debt crisis occurs when an organization fails to pay the interest due on time. Shareholders can wait one year or two without dividends but debt holds do not.
Indeed in such instances firms normally face high risk of bankruptcy. The lower debt finance of Dell Incorporation thus mitigates the low interest coverage when compared to the other firm. This ratio evaluates the corporation’s stability in terms of profits generated by the firm and not its capital structure as performed by the gearing ratio. High interest coverage is normally desirable for high-geared companies. Further more, the leverage of Dell Incorporation is better than the other firm thus further highlighting a sound financial stability.
1. 3 Concluding Remark – Investment Decision on Dell Incorporation A good financial health has been noted for Dell Incorporation both in terms of profitability, liquidity and stability when compared with the other company. Indeed supremacy was noted in some areas, such as working capital management. In this respect, it is advisable to buy more stock in the company, since positive prospects are envisaged if the firm will continue to be managed with the same pace.