FIN 327 DELL Case, Spring 2014
Objectives and Problem Assignments
Goals and Objectives
(1) Appreciate the relationship between sales growth and asset growth and requirements, and
calculate external financial need, internal growth rate, and sustainable growth rates for a
firm as in class example
(2) Describe the link between rapid sales growth and liquidity problems experienced by firms
even though they are profitable
(3) Estimate and define the required financing to support different levels of sales growth as
defined above
(4) Analyze how working Capital Management can be an important aspect of the firm’s
strategy.
Case Questions (Dell Working Capital)
Please answer the following questions. Feel free to bring up additional issues as parts of your
analysis of the case.
(1) What were the estimated sales growth rates possible for Dell under the assumptions of
internal financing and sustainable growth rate estimates in 1995 and 1996. How much did
sales of Dell grow in the corresponding years?
(2) In light of the above calculations; how did Dell actually finance its growth in 1995 and 1996?
What sort of actions was Dell able to take to maximize its market opportunities (or minimize
damage from such rapid growth)?
(3) Assuming Dell’s sales increase 50% in 1997, how much external funding would it need under
alternative assumptions of asset growth and funding assumptions? (Use Dell’s 1995-1996
experience as a guideline to one of the alternatives.) What policies should Dell implement to
achieve the best outcomes?
(4) How much is Dell’s comparative advantage due to its working-capital management relative
to competitors in the industry? (Try to make your argument using reported performance of
competitors.)
Case Write-up format
All written analyses must include a cover sheet listing the group members (alphabetically
by last name). Write the analysis like a memo to a key decision-maker assuming that the
reader is financially sophisticated. Think of the case solution having three parts
+Appendix: (MAX 3 Pages normally typed + Appendix
1. Introduction identifying the problem to be solved and your recommendation.
2. Analysis focusing on the specific case questions you receive.
3. Possible elaboration on recommendation.
4. Appendix with Tables and Figures (refer to appendix in text but note that the logic
of what you are doing should be understandable from text.)