A study on the history of Dell shows that it heavily relies on its operational effiency fir its market power. This is evident in the Dell’s 2005 Form 10-K. Michael Dell founded the company in 1984. It succeded in capturing the market in such a short time. The strategy used by the founder and now the already incorporated company, Dell Inc, was “to provide customers with superior value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use” as put in the form 10-K. This means that the products of Dell are tailored towards satisfying the customer. In Economic terms we can say that the market for Computer and IT related products is a competitive but a little monopolistic one and therefore for a company to win the preference of the customer, it has to produce tailor-made products to suit the prefences of the consumer. Dell is furthermore a stable company with a large capital base and this supports the view that it commands high operational efficiency
It is clear form the study on the business of Dell Inc that it operates in a very risky environment.This is because it is not easy to dominate a market of Information technology related products. Some of the business risks faced by Dell are as follows:
Competition: The business conducted by Dell Inc is very competitive. Therefore there is high insecurity in that the competitive advantage cannot easily be maintained. This company engages in a price war such that it sells its products at a price much lower that those of its competators. The risk is that the competators can also readjust themselves and be able to charge lower prices than Dell
Reliance on international trade. In the financial year 2005, it was realised that the total sales of the company comprised of 38% sales to foreign markets. The risk is that if the international markets become unstable, then the sales of Dell will be directly affected. Also, abnormal fluctuations can very easily affect its consolidated earnings
Seasonality of business. We see that the business of Dell Inc is very highly seasonal. This is because in different quarters of the Financial years sales to some major costomers like governments increase tremendously and in other quarters, reduce significantly
The company revenue is highly pegged on the efficiency of infrastructure. In this regard, we see that a hitch in the information structure, like a strong virus can really affect the sales. This is a high degree of unpredictability as far as the sales are concerned
Political stability. Dell, like any other company, will highly depend on the political stability of the United States and other states that form part of the market of the Dell products. In that sense, if the stability is affected, like in the case of terrorism, the market for Dell is affected
EFFECT OR THE SARBANES OXLEY ACT, 2002
The application of this act does not come out very clearly in the from under study, but it has the implication that the figures in the books of account have been properly examined for compliance, materility and substantiveness. The Financial statements have been found to present the true and fair view of the the statement of affairs of Dell inc.
IS DELL A MERCHANDISER OR A MANUFACTURER?
Dell is a manufacturer and not a merchandiser. The relevant information has been included in the form Form 10-K page 8. This is about the business risks faced by Dell as a company. The risks mentioned look at Dell as a manufacturing concern and not a merchandiser. That is why the risks are production-based and not mostly product based.
INVENTORIABLE COSTS AND GROSS MARGIN TRENDS
The direct inventoriable costs for Dell inc include the following
The raw materials that are used in the production process
The direct labour used in Dell’s manufacturing and assembling departments of Dell Inc.
The direct expenses that are incurred by Dell Inc in the course of production. These expenses can easily be traced
The indirect inventoriable costs that have been brought out in the financial statements of Dell in company are as follows:
We notice that the gross profit margin of the Dell Company has steadily grown between 2003 and 2005 and the margin of the net revenue increases only slightly.It is important to note that in order to move from the gross revenue to net revenue, we subtract expenses. We also notice between the two years mentioned above, the total expenses have grown almost at the same rate as the revenue. This causes the margin on the net revenue to increase just slightly.
The inventory balance as at January 28, 2005 is 459 million Dollars. The inventory figure is very small as compared to the other asset balances because it has been sold either on Cash or Credit. There is a significant amount in the Cash and Cash equivalents (4,747 million Dollars) as compared to the 459 million Dollars worth of the inventory Balance. This is a competitive advantage to Dell in that the Company does not hold too much cash in form of stock. The comparatively low price of the Dell products enables the Dell Company to have a high rate of Stock Turn Over. The negative Cash conversion cycle is a good sign for Dell since it signifies an efficient Cash Management system.
PERIODIC OPERATING EXPENSES
The operating expenses for the Dell Company are the selling expenses, General expenses, administrative expenses, research expenses, development expenses and engineering expenses. They are considered perioodic because they are recurrent over the financial years.
The cost objects of the company are as follows:
- Controlling the Variable costs
- Identifying least cost raw materials to be able sell the products at low prices
- Cost tracing into various production processes
- Minimizing the production overheads
The specific items are covered in the above sections
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