Essay on Case Study: Dell Computer’s Working Capital

Words: 924
Pages: 4

1. From Tab #1, what is the meaning of the Unneeded Investment? Why is having fewer “days” of inventory an advantage over Compaq?
Answer: The Unneeded Investment is done by Compaq in contrast to Dell. Dell could minimize its inventory days in 1995 to 44% of the inventory days of Compaq in the same year! It means for Dell that its liquidity does not have to be invested (to be held) in the inventory, but can be used to achieve faster growth or to do the prices of its products even more attractive.

2. From Tab #2, why does having lower inventory translate into a potential margin advantage for Dell?
Answer: Both Companies are acting on a high-tech market. The development and progress in this market is really fast.
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c. Increasing Accounts Payable, 22
Supplier try, exactly like Dell, to decrease its accounts receivable. There are opposite efforts of both parties. Especially for smaller supplier it is extremely important to hold their A/Rs possibly low.

d. Increasing Margin, 7%
In the competitive market like personal computers it is very difficult to increase margin for a company like Dell. The most possibilities to increase margin are directly in the company, internally. For example the decreasing of inventory can have an indirect impact on the better margin. It can be shown on the example of Dell and Compaq in Tab #2. For each of the options individually (one at a time), what is the amount it must change in order to meet the entire financing need if nothing else changes? (This is determined using the answers from B(v) above.) Additionally, for each of the four possible actions, what is a key business obstacle to changing it?

6. What are the ethical implications of aggressively increasing Accounts Payable?
Small businesses are particularly vulnerable to the problems caused by late payment especially with large corporate customers who can use their market position to dictate their own payment terms. Many large firms use their small-firm suppliers as a bank – taking, what is in effect, an interestfree overdraft. (Ryan, 2008: 373)1 It means that Dell should not use its strong market position very extremely at this point. Also smaller suppliers are