Essay: Financial Analysis of Dell

Essay: Financial Analysis of Dell
April 11, 2011 Comments Off on Essay: Financial Analysis of Dell Academic Papers on Business Studies,Sample Academic Papers admin

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Executive Summary

Per share intrinsic value of Dell calculated by the discounted cash flow model is $40 but the market value was $14.9 on 12-Jan-2010. Hence, the stock was trading at a discount of 63%. This shows that there is the probability of an increase in share prices by 53% as the market realized the true intrinsic worth of the stock. It is suggested to the investors to hold the stocks in order to earn handsome future retunes.

The rationale behind this suggestion is that company has a pretty good future growth potential. Some internal indicators of this potential growth are the consistent Earnings per Share (EPS), high return on assets by almost 7.4 times than that of the industry average. Though Return on equity of the company is low by 5.8 times from industry average due to high financial leverage, yet the good news is that company’s times interest ratio is high by 16.5 times than that of the industry average for the year 2009. It means that company has generated enough income from its operations to cover the cost of debt. However, the company has lower down its debt to equity ratio (0.75) close to an industry average of 0.1. This will reduce the bankruptcy risk of the company and improves the confidence of investors about its financial health. The company has to improve its assets management activates in order to increase the assets turnover ratio near to the industry average. The negative trend of the Do Punt analysis also reveals that profitability of the company is decreasing year after year. To improve the profitability, the company has to adopt a holistic approach by involving all the departments like sales and marketing, finance and Research & Development (R&D) etc. to formulate strategies for improving the sales, reducing cost, finding new investment opportunities, coming up with innovative products etc. For increasing the profitability, the company has to rejuvenate its brands and products portfolio. It may have to seek new business opportunities with good profit potential and fully exploit its strengths to overcome its weaknesses.

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