US Publicly Traded Companies Essay

US Publicly Traded Companies Essay.

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

US Publicly Traded Companies Essay

Forecasting Techniques Essay

Forecasting Techniques Essay.

The objective of this assignment is to investigate different business forecasting methods, and demonstrate the benefits of their use for a specific organization. We have learned that demand forecasting invokes the processes of determining exactly what service/products are needed, in what quantity, and in what amount of time. Organizations that are able to implement effective forecasting will be better equipped to find the balance between managing demand for a product/service and the capacity to meet this demand. The ability of optimizing this unique balance enables an organization to use this as a competitive advantage over their competitors

There are a variety of forecasting models to choose from and organizations should first decide which type of business decision is being made.

This initial determination will allow managers to decide which forecasting methods are appropriate or not given the period of time allotted. There are four basic families that describe distinct demand forecasting techniques which include the qualitative, time series analysis, causal, and simulation models.

We have learned that it is important to keep options open to apply different models – the one most readily available or commonly used may not be the most appropriate, and choosing the wrong one can cost a larger organization millions.

Qualitative Models

The qualitative forecasting technique is highly subjective in that it is readily influenced by opinions and estimates primarily utilized for long-range corporate strategies. The unique distinction between this method and the other three forecasting families is that those tend to be more quantitative in nature, relying heavily on the process of gathering and analyzing hard data. There are no formal mathematical models utilized in this forecasting family. For example, market research normally consists of a third party firm that primarily conducts surveys and interviews to determine product or service interest on various demographics. This information is then provided en masse without much analysis taking place. This method is highly judgmental, subject to individual bias, and used when historical data cannot be gathered.

Time Series Analysis

This forecasting technique is assumption-based in that it compares existing past demand data in order to predict future demand. An example of this technique is the simple moving average which allows the casual observer to visually witness trends and determine trends by changing period length which in turn affects visual trend lines. One of the primary attractions of this technique is that data is quickly compiled and organized, but a negative exists in that all the data collected during this process must be maintained until replaced by newer data. Best suited for short-term forecasts, other models within this family can more accurate forecast demand by using different techniques such as applying modifiers to desired ranges, but this comes at a higher cost due to increased amount of data and computation required. This forecasting family of models should not be utilized for long-term projections.

The Causal Family

The causal method predicts demand by assuming events are related to one another through some independent variable as its leading indicator, and relies upon fitting a mathematical trend line to acquired data points on this causal relationship to predict future demand. The multiple regression analysis is a subset of causal demand forecasting technique because it links two or more independent variables to demand of a product or service. This forecasting model is useful in calculating several factors to determine a single point of interest, and is most useful in determining long-term forecasts; a task in which it excels.

Simulation Models

The use of computers enables simulation-based forecasting models to make assumptions of multiple variables within the model, and quickly allow theoretical events to measure change. The computing power enables families such as causal demand techniques to be more accurately predicted as they use multiple variables. This model isn’t useful for shorter term, single-variable forecasts.

In discussions threads in class, I noted that my organization has had difficulty in effectively balancing the workload of it’s full-time employees (me) and contractors, and have performed quite poorly in developing a method to determine (and schedule) service load. For this and many other reasons, I have become quite despondent working with my current company, so I opted to perform research on another company I am familiar with, the Dell Computer Corporation.

Dell on meeting product demand

Dell has positioned itself as the direct to consumer producer of quality computers with top notch service, but in order to meet growth objectives they must rely on the ability to accurately forecast demand and provide this information through its supply chain. This is done in order to minimize costs, maintain market growth, and maximize profits. Dell maintains close relationships with its customer base to improve the accuracy of its demand forecasts. These are developed through the customer databases, based on products purchased, in an attempt to understand future computing needs of large accounts by jointly planning the company infrastructure and discussing their needs (Viswanadham, 2002).

Since 1984, Dell Computer Corporation has pioneered the direct marketing channel of PCs and their marketing objectives were based on a basic premise that PCs should be available to the general public. In direct marketing, the manufacturer sells directly to the consumer, rather than through “middle-man” retail stores. This direct business model eliminates retailers that add unnecessary time and cost, or can diminish Dell’s understanding of customer expectations. (Dell.com), and partially eliminates the need for extensive inventory in storage. Therefore, demand forecasting techniques are less critical for this business model than the more traditional models of their competitors (notably HP and IBM).

In order to maintain efficiency through the use of demand forecasting, Dell actively recruits individuals familiar with this knowledge coupled with their core beliefs of customer service and cutting edge technology. For example, the following is an active job posting listing the following requirements:

“Analyzes business needs and develops support solutions/processes to improve customer experience. Drives efficiencies to optimize IT resources. Participates in roadmap planning and project staffing/forecasting activities. … Has strong track record of effectively managing people as measured by Tell Dell results and peer feedback … Develops support forecasts and standards. … Strategic planning and tactical operational skills. Comprehensive understanding of IT disciplines. ” (Dell.com)

Dell uses a “Build-to-Order” (BTO) manufacturing process which distinguishes itself from Build-to-Forecast methods of more traditional computer manufacturers. This enables the delivery of a customized, lower-cost product quickly to the customer (Viswanadham, 2002). To further take advantage of their manufacturing model, Dell actually built a distribution center near a FedEx hub in Greensboro, NC to facilitate delivery to their customers.

Dell maintains a distinct competitive edge with an integrated supply chain process that refreshes their inventory every 3-6 days. This allows Dell a “first-to-market” advantage on newly developed technology and is important because over short periods of time, the price of technology drops and a competitor that is unable to move inventory as rapidly loses valuable profit. A benefit of this framework that Dell has established for its supply chain is that distributors carry the onus of storing and delivering large quantities of different products … [c]ompanies such as Dell using the direct model normally have around 20% cost advantage over companies using the direct one (Viswanadham, 2002). This price advantage results in lower prices for consumer products and a much larger market share as a result.

Conclusion

Demand forecasting is important to any business unit because it can minimize resources lost due to errors of forecasting vs. the actual realized demand. The process of forecasting is to examine recently-gathered data and develop a method to anticipate future events based on this earlier representation. Examining various forecasting models is important in order to determine which method best fits process requirements, and what amount of data needs to be collected over the desired timeframe. At this point, the appropriate forecasting model can be utilized to generate and forecast future events. Dell’s direct model greatly diminishes the need for highly accurate demand forecasts as they are quickly able to adjust, through their supply chain, product availability based on actual product demand.

References:

Dell.com (n.d.) Retrieved from http://www1.us.dell.com/content/topics/global.aspx/corp/en/home?c=us&l=en&s=corp&~ck=mn

University of Phoenix (Ed). (2001). Operations Management. [University of Phoenix Custom Edition e-Text]. Ohio: Prentice Hall

Viswanadham, N. (2002, January 25). Dell-on-Line: A Build-to-Order PC Supply Chain. Retrieved from http://lcm.csa.iisc.ernet.in/scm/nv-1.pdf.

Forecasting Techniques Essay