Question

Using Dell's 2019/2018 financial statements, please do the following

The requirements for the ratio analysis section are as follows.

Compute the following for each of the two most recent years.

Profit margin

Return on shareholders' equity

Current ratio

Interest coverage ratio

1. If you were an accountant for a potential vendor for this company, explain which of these ratios would be of the most interest to you. Would there also be a second ratio of interest to you?

2. If you were an accountant for a potential investor in this company, explain which of these ratios would be of the most interest to you. In your opinion, what other ratio or ratios beyond the ones listed above should also be considered in an investment context?

3.What is your overall opinion of this company based on the limited analysis completed via the four ratios? Feel free to mention any questions that you feel should still be considered in view of the ratios or the changes from one year to the next.

Answer 1

Particulars	As on 31st Oct 2019
Current Ratio	0.71
Return on Shareholders Equity	457.91%
Profit Margin	31.19%
Interest Coverage ratio	1.28

1. Being a Potential vendor, the ratio to be looked upon will be the Interest coverage ratio. The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the company's interest payments due within the same period.Lenders, investors, and creditors often use this formula to determine a company's riskiness relative to its current debt or for future borrowing. The second ratio to be looked upon will be the current ratio and the profit margins. Whether the company is making good profits and if the business is existing in the market as well as How good the current ratio are maintained by the company.

2. As a potential investor in this company,The Return on Shareholders Equity as it is the most important ratio to be looked upon. Return on Equity is a measure of financial performance calculated by dividing net income by shareholders equity. Because shareholders equity is equal to a company’s assets minus its debt, ROE could be thought of as the return on net assets. Return on equity (ROE) deemed good or bad will depend on what’s normal for a stock’s peers. The other ratio to be looked upon is the profit margins also because no investor will like a company to make losses. More the profits the more expectations from the investors for good returns and dividends. Other Ratios to be considered are as follows:

a. P/E Ratio b. Asset Turnover Ratio c. Debt to Equity Ratio d. Inventory Turnover ratio e. Net profit Margin ratio

3. Gross Margin % is calculated as gross profit divided by its revenue. Dell Technologies's Gross Profit for the three months ended in Oct. 2019 was $7,126 Mil. Dell Technologies's Revenue for the three months ended in Oct. 2019 was $22,844 Mil. Therefore, Dell Technologies's Gross Margin % for the quarter that ended in Oct. 2019 was 31.19%. During the past 5 years, the highest Gross Margin % of Dell Technologies was 30.84%. The lowest was 16.43%. And the median was 21.96%.

Interest Expense is the amount reported by a company or individual as an expense for borrowed money. Dell Technologies's interest expense for the three months ended in Oct. 2019 was $ -654 Mil. Its interest expense for the trailing twelve months (TTM) ended in Oct. 2019 was $-2,703 Mil. Interest Coverage is a ratio that determines how easily a company can pay interest expenses on outstanding debt. It is calculated by dividing a company's Operating Income(EBIT) by its Interest Expense. Dell Technologies's Operating Income for the three months ended in Oct. 2019 was $ 836 Mil. Dell Technologies's Interest Expense for the three months ended in Oct. 2019 was $ -654 Mil. Dell Technologies's Interest Coverage for the quarter that ended in Oct. 2019 was 1.28. The higher the ratio, the stronger the company's financial strength is. Note: If both Interest Expense and Interest Income are empty, while Net Interest Income is negative, then use Net Interest Income as Interest Expense. The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. It is calculated as a company's Total Current Assets divides by its Total Current Liabilities. Dell Technologies's current ratio for the quarter that ended in Oct. 2019 was 0.71