Financial Statement Analysis of Dell Technologies

Haris Saqib Qazi

Abu Dhabi University, Email: [email protected]

Supervised by:

Professor Haitham Nobanee

Abstract

In this paper, the financial performance of the American technology company, Dell

Technologies was assessed via the use of four different types of financial ratios. To compute

these ratios, data was extracted from Yahoo Finance. The progression of each ratio was

studied over the period between 2016 – 2019. Four types of ratios were analyzed: Liquidity

ratios, Activity ratios, Debt Ratios, and Profitability Ratios. This analysis, along with

secondary Literature Review of articles from peer-reviewed journals, allowed for the

development of suggestions to further increase the stability of the company’s financial state.

Introduction:

Dell Technologies is an American multibillion-dollar technology-focused company, with

headquarters in Texas, USA. It was founded in 1984 by Michael Dell from his dorm room

during his first year at the University of Texas. The Company was originally named PC’s

Limited, backed by USD 1,000 and the legendary vision that Michael Dell had that would

revolutionize the technology industry; reworking the designing, manufacturing, and selling of

technology from the ground up. Within three years, the company had produced and released

its first computer system, as well as opened its first subsidiary in the United Kingdom, finally

becoming a publicly-traded company in the following year and was officially renamed as the

Dell Computer Corporation.

In 2013, Michael Dell and private equity firm Silver Lake Partners bought back shares to

further the shift of the company’s focus towards innovations, long term investments and the

company’s solutions strategy. Finally, in 2016, Dell merged with the EMC Corporation and

formed Dell Technologies as a result, followed by the concurrent renaming of the EMC

Corporation to Dell EMC.[ CITATION Del16 \l 1033 ]

This paper will analyze the financial performance of Dell Technologies over the past four

years; from the year 2016, up until the year 2019. The analysis will consist of four different

types of ratios that will be studied throughout this paper, namely: Liquidity ratios, Activity

ratios, Debt Ratios, and Profitability ratios. Each of these ratios allows us to gain a proper

comprehensive understanding of the company’s performance throughout observation; each

ratio revealing a different dimension and aspect of the financial performance.

It is often observed that the implementation of sustainability practices is often lacking in the

finance and accounting sectors of a company in relevance to the other sectors in business

management. Furthermore, the discussion of unfavorable occurrences was found to have a

likely negative impression upon investors with a minimal finance background and minimal

understanding of the field;[ CITATION AlM201 \l 1033 ] leading to insignificant occurrences (the

negative side effects of which could have been easily contained), which in turn leading to the

deterioration of the company’s reputation for investors. One of the most dependable methods

of acquiring capital is by qualifying the stocks of the company within the category of ‘green

stock’; a massively supported segment of capital sources due to the ever-growing global

concerns regarding carbon emissions, depletion of natural resources, global warming, etc.

[ CITATION AlS20 \l 1033 ] This can be achieved by Dell Technologies by developing computer

systems designed to optimize sustainability and renewables-based industries. One such

example is the Electric Car industry, which reduces the global load and demand for natural
resources; directly addressing the concerns of those advocating for and supporting green

stock.

Data and Methodology

The data detailing the elements of the balance sheet and income statement for Dell

Technologies for the period 2016 – 2019 was extracted directly from Yahoo Finance; a

section of Yahoo! that provides financial data and news alongside stock quotes, financial

statements, etc.

Table 1: Financial Data for Dell Technologies. (all numbers in USD, in thousands)

Item/Year 2019 2018 2017 2016

Current Assets 36,868,000 36,138,000 38,957,000 30,773,000
Current Liabilities 52,456,000 44,972,000 45,892,000 38,135,000
Inventories 3,281,000 3,649,000 2,678,000 2,538,000
Cash 9,302,000 9,676,000 16,129,000 11,449,000
Receivables 12,484,000 12,371,000 11,177,000 9,420,000
Total Assets 118,861,000 111,820,000 122,281,000 118,206,000
Total Liabilities 115,706,000 112,762,000 107,294,000 99,197,000
Total Equity (1,574,000) (5,765,000) 9,326,000 13,243,000
Sales 92,154,000 90,621,000 78,660,000 61,642,000
Cost of Goods Sold 63,221,000 65,568,000 58,606,000 48,683,000
EBIT 2,622,000 (191,000) (3,333,000) (3,252,000)
Interest 2,675,000 2,488,000 2,406,000 1,751,000
Net Income 4,616,000 (2,310,000) (3,728,000) (1,672,000)

Liquidity Ratios:

Current Assets
Current Ratio:
Current Liabilities

(Current Assets−Inventories)
Quick Ratio:
Current Liabilities

Cash
Cash Ratio :
Current Liabilities
Liquidity ratios consist of the current ratio, quick ratio, and the cash ratio. These ratios show

the capability of the company in meeting short term obligations via the use of cash or

currently available resources that can be converted to cash, allowing the company to keep

track of resources at hand, and know whether or not the available amount is adequate to meet

their needs and maintain financial stability. [ CITATION AlK18 \l 1033 ] The current ratio

provides an understanding of the capability of the company to satisfy its obligations that are

due within one year, or within one operating cycle. The Quick ratio shows how able the

company is in satisfying its obligations that are due within one year by utilizing assets that

can be converted to cash or cash equivalents. The final liquidity ratio is the Cash ratio, wish

specifies what percentage of current obligations can be satisfied by already available cash and

cash equivalents.[ CITATION Bri09 \l 1033 ]

Cost of Goods Sold

Activity Ratios: Inventory Turnover :
Inventory

Sales
Recievable Turnover :
Recievables

Sales
Total Asset Turnover :
Total Assets

Activity ratios consist of Inventory turnover, Receivables turnover, and Total Asset Turnover.

These ratios determine how effectively and efficiently the resources of the company are

utilized over each year, and whether the effectively wasted amount of resources was

increasing or decreasing on a year-on-year basis.[ CITATION Kie09 \l 1033 ] The Inventory

turnover ratio shows how many times per year the inventory of the firm sold and replaced.

The Receivables turnover ratio shows how effectively a firm collects its due credit. Finally,

the Total Assets turnover ratio shows how well the assets are utilized to generate revenue.

[ CITATION Vel12 \l 1033 ]

Debt Ratios:
 Total Liabilities
Debt Ratio:
Total Assets

Earning Before Interest∧Tax

¿ Interest Earned Ratio:
Interest

The debt ratio is related to the capital structure of a company. The capital structure consists

of long-term debts, short term debts, preferred stocks, and common stocks. A sound and

optimal capital structure will allow the company to further optimize its performance as well

as gain a competitive edge in its industry. [ CITATION Tan19 \l 1033 ] The reasoning behind this

is that the company would be able to initiate campaigns or explore future endeavor options

that may not have been within their budget before acquiring proper financing, allowing them

access to opportunities that may yet be out of reach for their competitors. Debt Ratios consist

of the debt ratio, which states how much of the assets are financed through debt and the

Times Interest Earned Ratio, which shows how well a company can satisfy obligations

regarding repayment of the debt by using its income.

Profitability Ratios:

Net Income
Return On Equity :
Equity

Net Income
Return OnTotal Assets :
Total Assets

Net Income
Profit Margin :
Sales

The Profitability ratios elaborate upon the ability of a company to generate profits concerning

the total available assets, as well as the equity capital. [ CITATION Nal15 \l 1033 ] Profitability

ratios consist of Return on Assets (ROA), Return on Equity (ROE), and Profit Margin. ROA

shows the profitability of assets, while ROE shows profitability concerning equity. The

profit margin shows the percentage of revenue that consisted of profits for the company.

To achieve financial growth, it is imperative that incorporating and building upon the

sustainability element within the operations of the company should be one of the main
focusses. The main reason behind this is that the increase of the sustainability factor directly

correlates towards an increase in financial growth in terms of cost of capital, working capital

management, returns on investment, and capital budgeting.[ CITATION Alm19 \l 1033 ] These

practices allow the company to gain significant growth, while also allowing the company to

attain a significant competitive edge in terms of financial stability.

Results and Discussion

1. Liquidity Ratios:

Table 2: Liquidity Ratios of Dell Technologies (2016 - 2019)

Liquidity Ratios 2019 2018 2017 2016

Current Ratio 70.28% 80.36% 84.89% 80.69%
Quick Ratio 64.03% 72.24% 79.05% 74.04%
Cash Ratio 17.73% 21.52% 35.15% 30.02%
Figure 1: Liquidity Ratios of Dell Technologies (2016 - 2019)

Liquidity Ratios
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2019 2018 2017 2016

Current Ratio Quick Ratio Cash Ratio

a. Current Ratio:

Current Assets
Current Ratio:
Current Liabilities
The Current Ratio can be seen increasing between the 2016 – 2017 period increasing by

4.2%, followed by a gradual decrease of a total of 14.4% during the 2017 – 2019 period.

Throughout the observation period, the overall decrease in the ratio was about 10.4%. This

signifies a decrease in the ability of the company to meet its short-term obligations;

decreasing overall liquidity as well.

b. Quick Ratio:

(Current Assets−Inventories)
Quick Ratio:
Current Liabilities

The Quick Ratio can be seen increasing between the 2016 – 2017 period increased by over

5%, followed by a gradual decrease of a total of over 15% during the 2017 – 2019 period.

Throughout the observation period, the overall decrease in the ratio was approximately 10%.

This signifies a decrease in the ability of the company to meet its short-term obligations

through the utilization of current assets; further contributing towards the decrease in overall

liquidity.

c. Cash Ratio:

Cash
Cash Ratio :
Current Liabilities

The Cash Ratio can be observed to be increasing between the 2016 – 2017 period increased

by over 5.1%, followed by a substantial decrease of a total of over 17.4% during the 2017 –

2019 period. Over the four years, the overall decrease in the ratio was around 12.3%. This

signifies a decrease in the percentage of current obligations that could be satisfied by on-hand

cash and cash equivalents; further contributing towards the decrease in overall liquidity.

2. Activity Ratios:
Table 3: Activity Ratios of Dell Technologies (2016 – 2019)

Activity Ratios 2019 2018 2017 2016

Inventory Turnover 19.27 17.97 21.88 19.18
Recievables
Turnover 7.38 7.33 7.04 6.54
Total Assets
Turnover 0.78 0.81 0.64 0.52
Figure 2: Activity Ratios of Dell Technologies (2016 - 2019)

Activity Ratios
25.00

20.00

15.00

10.00

5.00

0.00
2019 2018 2017 2016

Inventory Turnover Recievables Turnover Total Assets Turnover

a. Inventory Turnover:

Cost of Goods Sold

Inventory Turnover :
Inventory

It was noted that the Inventory Turnover Ratio increased during the 2016 – 2017 period;

increasing by over 2.7 times the inventory was replaced and sold. It was followed by a

significant decrease of over 3.9 turns during the 2017 – 2018 period, ending with a final,

relatively less substantial increase of 1.3 turns during the 2018 – 2019 period. Over the four

years that this ratio was observed, the overall increase in the ratio was approximately 0.09%;

minimal and negligible. This signifies an increase in the number of times the inventory was

sold and replaced during a single year; signifying a sense of stability in the efficiency of the

use of inventory, further expressing effective stock management and order forecasting.

Overall, the company has favorable inventory turnover.

 b. Receivables Turnover:

Sales
Recievable Turnover :
Recievables

This ratio can be observed to be increasing throughout all four years, albeit conservatively,

increasing by a total of between 2016 and 2019. However, this is extremely favorable as it

depicts the company as increasingly efficient in collecting its debts.

c. Total Assets Turnover:

Sales
Total Asset Turnover :
Total Assets

This ratio can be observed to be increasing by 0.29 turns over the first three years, followed

by a relatively small decrease of 0.03 turns in the final year of the observation period.

However, the ratio shows that Dell earns less than one US dollar for each US dollar worth of

assets. Nevertheless, the overall increase of 0.26 turns over the four years shows that Dell

Technologies are consistently improving their asset turnover. Thus, increasing the efficiency

of generating sales using these assets.

3. Debt Ratios:

Table 4: Debt Ratios of Dell Technologies (2016 – 2019)

Debt Ratios 2019 2018 2017 2016

Debt Ratio 97.35% 100.84% 87.74% 83.92%
Times Interest
Earned Ratio 0.98 -0.08 -1.39 -1.86

Figure 3: Debt Ratio of Dell Technologies (2016 - 2019)

 Debt Ratio
120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2019 2018 2017 2016

a. Debt Ratio:

Total Liabilities
Debt Ratio:
Total Assets

This ratio experienced a significant increase of 16.9% over the 2016 – 2018 period, reaching

a point where over 100% of assets were financed, creditors. However, the ratio decreased by

nearly 3.5% in the final year. This ratio increased by a total of over 13.4% during the

observation period. This indicates increasing dependence upon creditors to finance the

company’s assets.

Figure 3: Times Interest Earned Ratio of Dell Technologies (2016 - 2019)

Times Interest Earned Ratio

1.50

1.00

0.50

0.00
2019 2018 2017 2016
-0.50

-1.00

-1.50

-2.00

b. Times Interest Earned:

 Earning Before Interest∧Tax
¿ Interest Earned Ratio:
Interest

This ratio consistently increased throughout the observation period, increasing 2.84 times

over the four years it was observed. This indicates an increase in the ability of the company

to cover its interest payments with its earnings.

4. Profitability Ratios:

Table 5: Profitability Ratios of Dell Technologies (2016 – 2019)

Profitability Ratios 2019 2018 2017 2016

ROE -293.27% 40.07% -39.97% -12.63%
ROA 3.88% -2.07% -3.05% -1.41%
Profit Margin 5.01% -2.55% -4.74% -2.71%
Figure 4: Return On Equity Ratio of Dell Technologies (2016 - 2019)

ROE
100.00%

50.00%

0.00%
2019 2018 2017 2016
-50.00%

-100.00%

-150.00%

-200.00%

-250.00%

-300.00%

-350.00%

a. ROE:

Net Income
Return On Equity :
Equity

This ratio decreased by 27.34% between 2016 and 2017, followed by an increase of over

80% in 2018 and ended by plummeting in the year 2019 by over 333.7%. However, this does

not necessarily mean that the company is not profitable. A detailed analysis of the ratio

shows that it is negative during 2016 and 2017 due to negative the loss experienced in those
years. However, in 2018, when the ratio seems to show an improvement by 80%, it is

actually due to both equity and Net Income being negative figures. Whereas in reality, this

combination shows ill implications towards the profitability of the company. Nonetheless, in

the final year, it can be noted that the negative figure of the ratio can be attributed to the

negative equity, while the company earned its only positive Net Income over the four years.

It can be concluded that the company has significantly improved its profitability over the four

years.

Figure 4: Return On Assets Ratio of Dell Technologies (2016 - 2019)

ROA
5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2019 2018 2017 2016
-1.00%

-2.00%

-3.00%

-4.00%

b. ROA:

Net Income
Return OnTotal Assets :
Total Assets

The ratio can be seen decreasing by 1.64% between the years 2016 and 2017 but is observed

to consistently rise over the remaining observation period, increasing by 6.93% between 2017

– 2019. The overall increase between 2016 – 2019 was nearly 5.3%. This signifies the

increase in the ability of the management of the company to generate income from available

assets and contributes towards the overall profitability of the company in a major and positive

manner.
Figure 4: Profit Margin Ratio of Dell Technologies (2016 - 2019)

Profit Margin
6.00%

4.00%

2.00%

0.00%
2019 2018 2017 2016
-2.00%

-4.00%

-6.00%

c. Profit Margin:

Net Income
Profit Margin :
Sales

The ratio is observed to decrease by 1.64over 2% during the period between 2016 - 2017 but

is observed to consistently rise over the remaining observation period (mirroring the ROA

ratio), increasing by 9.75% between 2017 – 2019. The overall increase between 2016 – 2019

was 7.72%. This signifies the increase in the proportion of revenue that constitutes the net

income of the company, further adding towards the overall profitability of the company.

Conclusion:

Dell Technologies is a multibillion-dollar company situated in Texas, United States of

America. The operations consisted of selling personal computers, private computing data

storage, etc. It is one of the top companies worldwide with a business focus on technology.

Over the past 36 years, Michael Dell, the founder of the company, has brought to life his

vision of revolutionizing the technology industry.

Throughout this paper, the financial performance of Dell Technologies was measured and

analyzed thoroughly. The financial data required to carry out the analysis was extracted

directly from the company’s yahoo finance profile. The types of ratios that were used to
evaluate the financial performance of the company consist of Liquidity ratios, Activity ratios,

Debt ratios, and finally, Profitability ratios.

Liquidity ratios show how well the company can meet and satisfy obligations that have a

maturity of one year or less, as well as how well these short-term obligations can directly be

covered by cash or cash equivalents. The Liquidity Ratios consist of the Current Ratio, the

Quick Ratio, and the Cash Ratio. Each of these ratios was found to have decreased over the

past four years; indicating a decrease in liquidity due to a decrease in the ability to cover

liabilities with short term maturities.

Activity Ratios show how well the company manages its inventory, how effectively and

efficiently available assets are utilized, and how able the company is in collecting its dues.

These aspects are covered by the Inventory Turnover, Total Assets Turnover, and the

Receivables Turnover ratios, respectively. These ratios provide a general sense of the quality

of the management operations within the company. All three of these ratios were found to

have experienced significant increases over the past four years, depicting improved

management of inventory, utilizing available assets more effectively to generate revenue and

improvement in collecting its dues.

Debt ratios show what percentage of the assets were financed by creditors of the firm, as well

as how effectively the cost of borrowing (Interest) is covered from the earnings of the

company through its operations. The included ratios are Debt Ratio and Times Interest

Earned Ratio. The debt ratio saw an unfavorable increase over the past four years, exposing

the increased dependence of the company on creditors to acquire assets. However, the Times

Interest Earned ratio saw a substantial increase over the observation period, portraying an

increase in the ability of the company to cover the interest payments through earing gained

from operations,
Finally, the profitability ratios show a generation of income with total equity, total assets, and

the profit margin ratio. These ratios focus on how profitable both the equity and total assets

of the company are, as well as what percentage of the revenues were able to be converted to

net income. The included ratios are Return On Equity, Return On Assets, and Profit Margin.

Although the ROE seems to have plummeted within the final year, it still depicts positive

income and was negative due to the negative equity. Furthermore, the ROA and Profitability

Margin ratios were found to experience substantial increases over the 2016 – 2019 period as

well. The overall profitability of the company increased over the observed time frame.

The overall financial condition of the company, based on the data collected from Yahoo

finance and previously stated findings, is sound and is further expected to experience

significant financial growth within the following years.

Suggestions to increase the financial stability of the company are to incorporate the element

of sustainability of into the organizational culture to reduce costs and increase the profit

margin (and by proxy, overall profitability), direct future endeavors towards sustainability

projects related to the company’s operations to qualify as green stock and increase the

attractiveness of the company as an investment for potential investors. Finally, it is also

suggested to reduce the impact of stating the occurrence of unfavorable incidences to

minimize the negative impact on the opinion of investors considering the company as an

investment opportunity.

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