Case Study: Dell Computer’s Working Capital Essay

1. What is the likely level of MCI’s external financing needs over the next several years?

a. Determine the value of the firm at the above debt levels. What level of debt should the firm

Moreover, the slight increase in Kohl’s average total assets has impacted their Du Pont ROI. Attributing to the decrease is the increased inventory and significant shrinkage in cash. Inventory turnover “measures how many times inventory turns over in a year.” (Berman, 2006) On average Kohl’s turned inventory 3.81 times in 2010, as compared to 3.53 times in 2012. This calculation of inventory turnover is illustrated in exhibit1.2. On average, the higher the ratio the better the company is at managing inventory it also gives them a better cash position. However, the company anticipated higher sales, but due to external factors mentioned above the company was unable to quickly convert inventory into sales as expected. To move inventory Kohl’s offered discount pricing on merchandise in the last six months of 2012.In anticipation of the 2012 holiday season, Kohl’s spent $523 million on inventory. This investment contributed

* Large inventory size (more than half of total assets) and low inventory turnover(less than half of the industry average).

• At the beginning life cycle (ramp-up) of product, the cost of stock out would be high because for every order lost would not only result in lost in revenue but also future revenue. The theory is the customers tend to buy similar product and/or brand to keep consistency. In addition, it takes over four life cycle of product before that customer returns to HP.

The company is looking to increase profitability and find a long-term solution to the inventory problem.

Dell uses a just in time order fulfillment policy and accurate forecasting of sales to minimize inventories. This allowed Dell to hold inventory of finished products far below levels of their competitors (10-20% compared to 50-70% industry level) and furthermore allowed them to quickly implement changes to their product lines as new technologies became available. This quick inventory turnover also allowed Dell to retain more capital. Finally, this policy enabled Dell to respond immediately to technological progress in components and deliver state of the art new finished products (e.g. Pc’s holding the newest Pentium microprocessors) while competitors

Support: The inventory increase in 1997, YOY, was 58%. Additionally, the COGS to revenue ratio reduced from to 72% in 1997. This combination of increase in inventory and reduction in COGS as a percentage of revenue seems to indicate that the fixed costs may have been spread over a larger base through over production, thereby causing the COGS to reduce. This may be a cause for concern and could be a potential red flag.

a. Payment terms and accounts receivable affect a business’ cash flow in a big way. As such, Gone Rural needs to view the accounts receivable as an investment because the money that is tied up in it is unavailable to pay Gone Rural’s bills. With an average collection period of 4-6 months and large orders having no deposits, Gone Rural has a very large investment in accounts receivable. Typical

Accounts receivable turnover is the second method by which a company’s trade receivables’ liquidity can be evaluated (Gibson, 2011). Žager et al. (2012) noted turnover ratios should be as high as possible as this indicates a firm’s ability to convert its assets more often. 3M’s accounts receivable turnover for years 2007 and 2008 is shown in Exhibit 2. In 2007, 3M turned its accounts receivable over 7.12 times and 7.70 times in 2008. This calculates into a turnover of its accounts receivable every 51.28 days in 2007 and 47.38 days in 2008. The increase in accounts receivable turnover times per year (decrease in number of days to turnover accounts receivables) from 2007 to 2008 is a positive trend for 3M. It suggests, along with the prior calculation, the management of receivables is likely to be improving in efficiency.

4) Exploring the possibility of implementing JIT (Just in Time) system that can reduce the finished goods inventory at

b) vendor managed inventory. c) quality at the source. d) ISO certified parts. 18) Which of the following are objectives of inventory? I. Maximize customer service II. Efficient transaction III. Low cost plant operations IV. Minimum inventory investment a) I, II, and III b) I, III, and IV c) I, II, and IV d) II, III, and IV 19) The Just-in-Time philosophy can be best defined as: a) Delivering goods just before they are needed b) Fulfilling customer orders just as they are needed c) Manufacturing without inventory d) Elimination of waste

This set of data belongs to the online retailer industry. The most significant categories that helped with our decision was the low inventory for a retail business and the relatively high inventory turnover. The reasoning behind the high inventory turnover was because the goods were allowed to sit in storage until sold because of the online aspect of the business. We were also able

Due to high investment in fixed asset the firm also need a high amount of debt in order to cover its expenses so the smooth run of business.

In the commercial environment Apple are known not only for their innovative products: they are also known for their highly effective inventory control. The system utilized by the firm means that at any point in time there is a minimal amount of capital tied up in the inventory, holding only sufficient inventory to support sales for five days. The ability of the firm, to operate consistently in this manner without suffering significant 'stockouts', especially when the demand for the products does not remain the same through the year, is a credit to the organization and ability to adapt to the demand, indicating a strong understanding of the way inventory needs vary. To appreciate the way this may occur it is possible to look at the firm and examine the way inventory is used, assessing the level of seasonality and looking at the stock management in this context.