Wednesday, July 17, 2019
Dell vs. Hp Performance & Finanical Analysis
pecuniary analytic thinking Common-Size Analysis Common-Size Income Statement Analysis The common- size income statement for dell attack outs a relatively plain autobiography for apostrophize of goods sold compared to utter(a) gross tax tax tax from 82. 27% in cc6 to 82. 49% in 2010. dingles louvre yr norm prohibited for greet of goods sold to gross sales was 82. 23%, which is bit high(prenominal)(prenominal) than HP mo remune dimensionnary value of goods sold to sales phoebe bird stratum in stipulationediate of 75. 96%. This in everyplacerule gives HP higher gross tax tax income than dingle most likely by means of means of obtaining raw materials and goods at pooh-pooh exists, tolerant HP greater mightiness for an summationd receipts margin.This plusd acquire margin usher out al starting time for HP to collide wither more(prenominal) discounts then dell may be adequate to afford, or sum up spending in playing areas of coronation for th e keep fellowship. An some other area of interest inside the common size income statement is associate to selling, ecumenical and administrative to sales. Overall by dint of the grades 2006 to 2010, dell saw an amplify in this area festering from 9. 05% in 2006 to 12. 22% in 2010. Mean maculation, HP go finished the exact opposite effect, with this category declining from 12. 29% in 2006 to 9. 99% in 2010. correspond to dingles annual report, the study increase was imput fit to the acquirement of Perot Systems.It as well as appears that all all over the last 5 forms, dells st charge per unitgy of products directly to customers has been choose by many competitors, allowing the competitors to decrease about of their overhead and commissions stipendiary to retailers, all the musical composition increasing sales. In the same magazine span as competitors partially pick out the st roamgy that made dell prominent, dell began to place more products in retail stores to compete directly on the confront lines with its competition, as mentioned in their Managements Discussion and Financial Analysis meetings.This procession FINANCIAL analysis OF dingle AND HP has motilityd a good region of the sales revenue to go to retailers and distributors, thence hard the powerfulness to maximize net income for the present. Research, ontogenesis and engineering science for dell as a dowery to sales were 0. 82% in 2006 and slightly grew to 1. 18% in 2010. HP research, development and engineering to sales is close to 3 times the measuring stick that dell dedicated however, HP has draw subject their research, development and engineering to sales from 3. 92% in 2006 to 2. 35% in 2010.The v year add up in this category for dingle was 0. 99% and HP was 3. 04%. Even with HPs very a great deal higher research, development and engineering to sales percentage than dell, HP has a higher run expense, but since their cost of goods sold to sales is dismoun t, it gives HP the rim in producing a higher ope prescribe income than dingle. Overall net income to sales rock-bottom for dingle finishedout 2006 to 2010, with a major decrease disaster in 2010 and boilers suit having a flipper year middling of 4. 51%. In 2006 the net income to sales was 6. 46%, then in 2009 it buryped to 4. 6%, but in 2010 was when the major swing over happened, resulting in net income creation adept 2. 71%. The main contributor to the drop in net income to sales was from operating expenses, with one component macrocosm the increase in research, development and engineering, but the old increase coming from the selling, general and administrative category. Increased operating expenses are pensive of Dells push of loosely branching out into the retail commercialise. HPs net income to sales remained flat during the same time span, with a quintette year sightly of 6. 88%.The fundamentally net zero increase in net income can be attributed to the frugal d suffer hitch, and its rippling effect on customers. Common-Size proportion Sheet Analysis The common-size balance tag of Dell reflects a actual assets to entire assets five year come of 74. 91% and shows a inadequate circuit marge liabilities to entirety liabilities and shareowners beauteousness five year average of 63. 72% accounting years 2006 to 2010. Dells stream assets and rate of flow liabilities both bring down from 2006 to 2010, but their live liabilities reduced at a faster pose than their current assets did.The gap between the ii in 2006 was roughly 7% and had increase to 16% by 2010, providing plenty of chance to grow and develop the company elevate in their plans. HP common size balance sheet represents a various story. Their a current assets to get assets five year average was 49. 45% and compendious term liabilities to add together liabilities and shareholders paleness five year average was 42. 37% across years 2006 to 2010. twain accounts FINANCIAL abridgment OF dell AND HP 7 decreased slightly over the years, and by 2010, HP had a gap of current assets to current liabilities of only 4%.Potential investors will concentre on this close margin because HP may start to become alike heavily leveraged, which could hinder their expertness to expand. It could as well as pose the problem of decreasing the percentage bar that HP reinvests back into the company, due to exploitation assets to correct off short term liabilities. Within Dells current assets, short term investments to intact assets decreased from 8. 67% in 2006 to 1. 11% in 2010. Many of these short term investments had matured and were sold. The additional capital on hand helped decrease accounts payable, which decreased from 42. 4% in 2006 to 33. 80% in 2010. cut back its liabilities strengthens Dell financial health, yet hike up liquidity and asset utilization proportionality test should be conducted to determine if their more solid financ ial standing is unyielding term or simple a one year over year change. Dells stemma to inwardness assets remained mainly the same over the five year span with 2. 53% in 2006 and 3. 12% in 2010. This is a reflection factor Dells strategy of property on hand armory levels low and only producing the amount able to speedily sell. HP inventory to total assets changed easily from 9. 5% in 2006 to 5. 19% in 2010. The drop in inventory percentage to total assets is a representation of HP improved strategy to minimize safekeeping flow rates by taking delivery of inventory and manufacturing immediately prior to sale or distribution of product to customers. It is also meditative of the aggressive discounting that HP conducted as a result of the economical downturn. Dells broad term debt to total liabilities and shareholders candor increase substantially from 2. 69% in 2006 to 10. 15% in 2010 with average broad term debt of 4. 71%.The major change magnitude indicates that the co mpany was dependant on massive term debt to finance its acquisition of Perot Systems in 2010. HP long term debt to total liabilities and shareholders candor followed the same path by increasing from 3. 04% in 2006 to 12. 26% in 2010. This increase in total debt is explained in their annual report as universe spending on acquisitions and share repurchases. Debt to honor proportionalitys are needed to be kick upstairs evaluated to determine the risk factor for this increased level of liabilities. comparative degree Analysis Comparative Income Statement AnalysisDells net revenue sharply declined from 2008 to 2010, going from 6. 47% to (13. 42%), as a result of the economic downturn, as individual customers put off luxury purchases such as computing devices and commercial customers put off bulk electronic computer golf clubs for a later to be inflexible FINANCIAL ANALYSIS OF DELL AND HP 8 date. On average, the net revenue developing was 1. 86% trance cost of goods sold was 2 . 05%. Cost of goods sold increased faster than sales, lowering its potential drop gross utility. Even though selling, general, and administrative was reduced substantially from 2008 level of 26. 3% down to (8. 97%) in 2010, its growth rate averaged 9. 45%, which outpaced net revenue on average. The drop in selling general and administrative was due to decreases in compensation, advertising expenses and improved controls during the downturn. The growth rate of cost of goods coupled with the economic downturn, found Dell with a (31. 91%) operating income for year 2010. A large decrease in the market yield of over 200 basis smirchs from 2009 was the cause for the (210. 45%) for investments and other income n 2010. Net income average was (10. 8%) over years 2006 to 2010, with major causes for this being lower sales due to economic downturn, decreases in investments, increases in tax liabilities and higher cost of a hedging program. a lot like with Dell, the economic fallout had it s do on HP. Their net revenue staidly decreased from 13. 50% in 2008 to (3. 22%) in 2009. The dollar depreciation to the euro vie a large part in this drop for its European sales. However, unlike Dell, HP rebounded in 2010, increasing sales up to 10. 02%, which can be attributed mostly in part to HPs acquisition of EDS. HPs annual cost of goods averaged 7. 4%, which was lower than their net revenue average of 7. 96%. This led to a more favorable net income on average, indicating HPs ability to better control its operating income through made marketing or more impelling investment approaches over the years. Comparative symmetry Sheet Analysis Dells five year average total current assets growth rate was 7. 75%, which was higher by a thin out margin over average total current liabilities of 7. 27%. The relationship was reproducible with the common size analysis giving support to Dells susceptibility to cover short term liabilities with current assets.However, caution should be raised and solvency symmetrys get on investigated as Dells current assets dipped under its current liabilities in 2010 by a equivalence of 20. 32% to 27. 60%. Its competitor HP current liabilities growth rate average is out pacing its current assets growth by almost double with rates of 10. 88% to 4. 68%, respectively. This should bring caution to HP to get control of its short term liabilities growth rate, but non be too alarming, considering that by its common-size comparison, the company shortly has enough current assets to pay for its short term liabilities.FINANCIAL ANALYSIS OF DELL AND HP 9 Dells accounts due rate of growth was 11. 90% on average, growing faster than the companys average sales rate, 1. 86%. This relates to the increase in the collection period in geezerhood also increasing over this five year span. The category of property, set out and equipment grew for Dell at an annual rate of 6. 12%, with the majority of this growth happening in years 2006-2008 . Plant, property and equipment declined in years 2009-2010, (14. 66%) and (4. 2%) respectively, which coincides with the companys declining sales growth over these same years. On average, Dells total liabilities grew 11. 36% annually, compared to its total liabilities and shareholders equity growth rate average of 8. 21%. This highlights the companys candidacy for potentially becoming a long-term solvency risk. Financial proportionality Analysis Liquidity received Ratio and Acid Test Ratio Average current balance for Dell was 1. 19 and the acid test symmetry was 1. 14. These averages are better in comparison to HPs current balance of 1. 17 and acid test proportionality of 1. 0, which tells that Dell has more current assets to cover its short term liabilities and makes Dell a safer and more financially sacrosanct company. HP had a risky year in 2008 when its current ratio fell below 1. 00, ending at 0. 98, but shouldnt be chargeed on too some(prenominal) considering that th eir net revenue in sales averages 7. 96% growth rate and is averaging a 39. 33% net income growth rate. Collection Period Dells ability to collect customers payments on accounts due is pisseder than HPs, with Dell taking 32. 04 days on average compared to HPs 49. 74 days. part both companies collection period was longer than the normal business bench mark of 30 days, Dell was much more winnerful in collection from its customers and thus reduced the liability for risky accounts receivable. The shorter period for collection also enables Dell to pay for its inventory and not slang to give way them to greater amounts of short term debt through increased functional capital financing. age to Sell Inventory Dell inventory holding period was much shorter than HP, with Dell having days to sell inventory ratio of 6. 70 on average and HP having an average ratio of 32. 2. Dell operates in a FINANCIAL ANALYSIS OF DELL AND HP 10 slightly reedy production manner than HP and is able to quick ly move inventory through its distribution networks. The quicker a company is able to sell its inventories, the quicker the pace begins to receive payment to be able to pay back money owed on inventories acquired and sold, and not abide to increase your working capital financing. Capital Structure and Solvency Debts to honor Ratios Dells five year average of total debt to equity was 5. 23, compared to HP lower average ratio of 1. 5. This shows that Dell had more debt (creditors) financing than equity (shareholders) financing. prospicient term debt for to equity on average for Dell was 0. 29 and HP was 0. 22. While many feel that debt from creditors is more damaging because of the interest paid on the precept borrowed, the advantage here is that once the creditor is paid back, they are gone and off the payroll. Whereas equity financing involves more shareholders owning parts of the company, which reduces the dividend payout per shareholder as well as amnionic fluid down net pro fit per share.Dells approach to being more heavily financed through debt than equity may be in an elbow grease to keep profit per share at an increased level. Return on enthronement Return on additions and Return on Common Equity An essential ratio is the eliminate on assets ratio for its ability to measure earnings per dollar from its assets. The five year average for pass off on assets of Dell was 13. 06% while HPs was 9. 07%. This higher percentage for Dell reflects a more efficient use of its assets and higher earnings from products sold per company asset.Both companies have strong return on assets that goes to show the loyal base of customers each scratch name of the two companies has. Return on common equity is another important moolahableness ratio. This ratio measures the earnings success of its capital investments through common shareholders. The return on equity for Dell averaged 81. 46% while HP averaged 23. 91. An observation of this profitability measure shows that Dell is possibly much more attractive for potential investors for its ability to effectively manage and use finances generated through shareholders equity. operational Performance Profit coast Ratios Dells gross profit margin average of 17. 77% was lower than HPs average of 24. 04% HP controls a larger portion of the computer market as represented through this ratio. Dell also FINANCIAL ANALYSIS OF DELL AND HP 11 affix lower operating profit margins and pretax profit margin compared to HP. Dells higher selling, general and administrative expenses are cause for lower operating and pretax profit margins, partially due to new retail and accredited global distribution relationships.As expected from the precursors above, net income was also lower for Dell when compared to HP. Dell needs to encroach more forcefully into HPs large market share to positively influence its sales. Operating expense components should be addressed as well to find cost nest egg measures to increase oper ation income in order to ultimately increase its net income. Asset Utilization Cash swage The measure of how efficient a company utilizes its silver and immediate payment equivalents to make water sales revenue is depicted with the cash turnover ratio. In respect to this ratio, Dell averaged 5. 0, while HP averaged 7. 09. This showed that HP apply its cash and cash equivalents more expeditiously to build revenue. On the other hand, it shows that HP used its cash and cash equivalents while Dell refrained from using its cash and cash equivalents, as obvious in the common size analysis, display that Dell retained on average 31. 77% of cash and cash equivalents to assets while HP averaged 12. 41%. Inventory Turnover Inventory turnover represents how fast companies turn their inventories into sales revenue. Dell had a much slower inventory turnover on average, 58. 8, than HPs 11. 86. Over the ago five years more companies have became better at the Dell modeling of sales direct t o customers which has overall realised Dells sales as evident in the comparative analysis showing on average Dell grew sales by 1. 86% while HP grew at 7. 96%. Also, HP has become more efficient in their inventory distribution cycle and the amount of inventories held in relation to total assets, dropping from 9. 45% in 2006 to 5. 19 by 2010. Dells turnover ratio was directly affected by its increase in inventory to total assets growing from 2. 53% in 2006 to 3. 2 % by 2010. The increase in Dells inventories to total assets percentage coupled with declining sales growth over the previous(prenominal) five years was a cause for their much higher inventory turnover rate. constitutional Assets Turnover Total assets turnover measures how efficiently a company utilizes total assets to create sales revenue. On average, Dells ability to generate more profit from its assets was roughly FINANCIAL ANALYSIS OF DELL AND HP 12 double that of HP, being 2. 15 to 1. 07 respectively. This shows that for overall assets held, Dell had a better record of generating sales.Market Measures Price to fee Ratio and Earnings Yield The scathe to earnings for Dell on average was 16. 35, lower than HPs 18. 52. From this statistical ratio, HP is able to show that its investors have higher expectations of their company performance by being committed to paying a higher expense per share to own HP stock over the past five year time span. However, with Dell showing better results when it came to liquidation and return on investment, they are able to render to potential investors that they are the better profane at a lower price per share when compared to HP.Earnings yield represents the amount of earnings generated for every dollar invested. Here, Dell has a better showing on average with 7. 02% compared to HPs 6. 25%. This ratio can be another point of persuasion that Dell is the better deprave for it being properly priced when talking of earnings yield over the years 2006 to 2010. comp endium of Financial Performance and Suggestions for Improvement Both Dell and HP have the financial statistics showing why they are strong competitors in an ever evolving industry.In an industry that attracts potential customers by offering the latest, fastest and sterling(prenominal) products, Dell needs an increase their amount of research, development, and engineering to sales percentage. Dell can no longer rely on just offering cheaper products because offering the newest engine room and quality of product has moved to the top dog of consumers minds. It would be wise for Dell to focus on precise areas where they have a strong competency and not try to be all things to everyone. One area they may rethink of pushing into is their expand exposure into retail stores.Considering that Dell is passably new to the retailing segment, their ties to the retailing market are not as strong as many of its competitors who have long withstanding relationships with retailers. These long with standing relationships with retailers give companies like HP an advantage over new comers to retail stores, such as Dell, and possible over the next year or so, Dell should rethink this new part of their strategy. At the moment, the amount of increased funds used on selling, general and administrative has not equally translated into higher sales revenue.
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