Financial Assessment (Exhibit 1)
1. Net Profit Margin
Net profit margin is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. In 2004, the net profit margin of Dell was 7.8%, and it has been steady. Although net revenue has been increasing from 1998 to 2004, net profit margin has been increasing as much as expected.
2. Return on total assets
Return on assets is an indicator of how profitable a company is. Return on assets of Dell has actually declined from 22.12% in 1998 to 13.7% in 2004. Investors usually look for companies with returns on assets are high and growing.
3. Return on equity
Return on Equity is used as a general indication of the company's efficiency; in other words, how much profit it is able to generate given the resources provided by its stockholders. ROE of Dell has also decreased from 73.01% in 1998 to 42.12% in 2004; however, it might be said that Dell have been able to keep high ROE level. Investors usually look for companies with returns on equity that are high and growing.
4. Long-term debt-to-equity ratio (Gearing ratio)
A high gearing ratio is unfavorable because it indicates possible difficulty in meeting long term debt obligations. Dell's gearing ratio has been increasing from 1.31% in1998 to 8.04% in 2004.
Overall, the reason why Dell's strategy won its competitors was how much they could be customer-oriented. And pursuing small and just-in-time inventory management fitted to the rapid change of IT technology.
Because Dell comprehended what the industry situation was, and correctly expected how it would be in the future, they execut ...