Inventory Days-1995 Compaq Dell Difference Days 73 32 41 From Case From Case
(B)
Liquidity Impact Days Difference Total Days Ratio Dell COGS-1995 Unneeded Investment 41 365 0.11233 $ 2,737 $ $ 307 652 47% From Case From Case
(C)
(A)
(B)
Inventory as a Percent of COGS Dell Total Days Ratio Value Loss (Given) Dell 32 365 8.8% 30% -2.6% Compaq 73 365 20.0%
(This is the reduction in value of inventory due to obsolescence and downward price realization.)
Compaq
-6.0%
(C)
Margin Advantage Dell COGS 1995 Dell Loss Advantage Potential Margin Adv. $ 2,737 3.4% $ 92
Calculating Required Investment to Support 1996 Growth 1995 3,475 149 % of Revenue 100.0% 4.3% 1996 Est. 5,296 From Case 228 Pro Forma at Same Margin
Key Assumptions:
Short-Term Investments not linked to sales growth Liabilities are fixed (financing requirement lower if they also rise with Sales)
Calculating Required Investment to Support 1997 Growth 1996 Actual 5,296 272 % of Revenue 100.0% 5.1% 1997 Estim. 7,944 Assume growth @ 50% 405 Pro Forma at Same Margin
Key Assumptions:
Short-Term Investments not linked to sales growth Liabilities are fixed (financing requirement lower if they also rise with Sales)
Levers 1996 Memo: Sales Memo: COGS A/R DSO Inventory Days A/P DPO Gross Margin GM% 5,296 4,229 726 50.0 429 37.0 466 40.2 1,067 20.1% 1997 (e) 7,944 6,344 1,089 50.0 644 37.0 699 40.2 1,601 20.1% 1,198 5 55.0 644 0 37.0 960 15 55.2 1,918 4.0% 24.1% 222 Adj. for taxes @ 30% 261 0 (109) Proposed Change New 1997 Metric 1997 Adj. Cash Impact
TOTAL
374