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Summer Training Project On Comparative Analysis of Financial Statement of Dell V/s HP


Submitted In Partial Fulfillment of the Requirements of the Degree of Master of Business Administration

Academic Guide Faculty Name: Dr. Asim Ray Designation: Assistant Proffesor SRM University NCR Campus, Modinagar

Submitted by: Student Name: Sonali Saurav Registration No: 3511030094 MBA (Batch 2010-2012)

I SONALI SAURAV, Registration no. 3511030094, MBA programme, SRM University, batch of 2010-2012 do hereby solemnly declare that this dissertation is an original work of mine and this has not been submitted to any other institute/University towards any other degree/diploma.


The beatitude and bliss that accompany successful completion of any task would not be complete without the expression of appreciation of simple virtues to the people who made it possible. So, with veneration honor I acknowledge all those whose guidance and encouragement has made successful in winding up this.
I am very much grateful to Mr. Inderjeet Luthra, Director of Accounts Department, for the same MR. Samarth Kapoor, Accounting Advisor of Dell Services, Noida.

Many people have rendered help in different ways in preparing this project. It was a sense of excitement to work with the staff of Dell. I thank them for their friendly spirit and kind help they have rendered to me.
I extend my gratitude and thankfulness to Dr. N.C. BANSAL (H.O.D MBA Department) Dr. ASIM RAY (Faculty SRM University) and for kind co-operation and help in completing this project. Last but not the least Im also grateful to my FRIENDS and FAMILY for providing me the continuous support to motivate me to successfully complete my report.


CERTIFICATE (Furnished by faculty guide) TO WHOM IT MAY CONCERN This is to certify that Ms.SONALI SAURAV, Registration no.3511030094 of batch has completed his summer training report and duly submitted it after my approval

Name of Faculty: Dr.ASIM RAY Designation: ASST. PROFFESSOR Date: (Guide)

Chapter Topic Declaration Acknowledgments Certificate (by faculty) Certificate (by company) 1. Introduction 2. Concept of the Research Area 2-5 Page No. i ii iii iv

Company profile Brief on DELL Mission and vision Business Model of DELL Accounting Standards Board of Directors History of HP 5-10 11 12 13-15 15-16 17-19


Objectives of the Study



Research Methodology Research design (type of research) Tools/techniques used in the study Scope of the study Data collection Limitation of the Study 21 21 21 21 22

5. 6.

Analysis Conclusion and suggestions Annexure Bibliography

23-38 39-40 41-44 45


FINANCIAL STATEMENT ANALYSIS Analysis of financial statements is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm. The analysis and interpretation of financial statement are an attempt to determine the significance and meaning of financial statement data so that the forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities and sound profitability and sound dividend policy.

Objectives of financial analysis

Judging the earning capacity or profitability. Judging the managerial efficiency. Judging the short-term and long term solvency of the enterprises. Inter firm comparison. Making forecasts and preparing budgets.


Comparative financial statement. Common-size financial statement Trend percentage. Ratio analysis. Fund flow statement. Cash flow statement.

RATIO ANALYSIS Ratio analysis is the powerful tool of financial statements analysis. And the financial analysis is a important part of the business planning process such as SWOT analysis (Strength, Weakness, Opportunity, Threats). So no business planning will be successful without the financial analysis and financial analysis will not be successful without ratio analysis. A ratio is define as the indicated quotient of two mathematical expressions and as the relationship between two or more things. The absolute figures reported in the financial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio helps to summaries large quantities of financial data and to make qualitative judgment of the firms financial performance. Role of ratio analysis: Ratio Analysis provides further insight about the financial strength and weakness of the firm. It helps to appraise the firms in the term of their profitability and efficiency of performance, either individually or in relation to other firms in same industry. Ratio analysis is one of the best possible techniques available to management to impart the basic functions like planning and control. As future is closely related to the immediately past, ratio calculated on the basis historical financial data may be of good assistance to predict the future. E.g. On the basis of inventory turnover ratio or debtors turnover ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales. Similarly, the ratio analysis may be able to locate the point out the various arias which need the management attention in order to improve the situation. E.g. Current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with all the aspect of the firms financial analysis liquidity, solvency, activity, profitability and overall performance, it enables the interested persons to know the financial and operational characteristics of an organization and take suitable decisions.

Ratio analysis is one of the techniques of financial analysis where ratios are used as a yardstick for evaluating the financial condition and performance of a firm. It enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses. Various ratios are computed, depending upon the objective of the user analyzing the financial statements.

ADVANTAGES OF RATIO ANALYSIS Simplifies Financial Statement: Ratio Analysis simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business. Facilities Inter-firm Comparison: Ratio Analysis Provides data for inter- firm comparison. Ratios highlight the factors associated with successful and unsuccessful firms. They also reveal strong firms and weak firms, over-valued and under-valued firms. Makes Intra-firm Comparison Possible: Ratio Analysis also makes possible comparison of the performance of the different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. Helps in Planning: Ratio analysis helps in planning and forecasting. Over a period of time a firm or industry develops certain norms that may indicate future success or failure.

LIMITATIONS OF RATIO ANALYSIS Ratios alone are not adequate: Ratios are only indicators; they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen. No fixed standards: No fixed standards can be laid down for ideal ratios. For example, current ratio is generally considered to be ideal if current assets are twice the current liabilities. Ratios are a composite of many figures: Ratios are a composite of many different figures. Some cover a time period, others are at an instant of time while still others are only average.


LIQUIDITY RATIOS Current ratio Liquid ratio Absolute liquid ratio

PROFITABILITY RATIOS Profitability ratios based on sales Gross profit ratio Profit margin ratio Profitability ratios based on capital employed Return on total assets ratio

ACTIVITY RATIOS Inventory turnover ratio Total assets turnover ratio

LEVERAGE RATIO Debt equity ratio

Dell, Inc. is an American multinational information technology corporation based in Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Dell is listed at number 41 in the Fortune 500 list.

Dell has grown by both organic and inorganic means since its inception notable mergers and acquisitions including Alienware (2006) and Perot Systems(2009).

As of 2009, the company sold personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce.

Fortune Magazine listed Dell as the sixth largest company in Texas by total revenue. It is the second largest non-oil company in Texas (behind AT&T) and the largest company in the Austin area. On September 21, 2009, Dell announced its intent to acquire Perot Systems (based in Plano, Texas) in a reported $3.9 billion deal. Perot Systems brought applications development, systems integration, and strategic consulting services through its operations in the U.S. and 10 other countries. In addition, it provided a variety of business process outsourcing services, including claims processing and call centre operations.

Dell Services
Dell Services (formerly Perot Systems) is an information technology services provider based in Plano, Texas, USA. Peter Altabef has served as president and chief executive officer since 2004. On September 21, 2009, Perot Systems agreed to be acquired by Dell for $3.9 billion.


It is a subsidiary of Dell. The various products of dell services are: Application development System Integration Information technology consulting Application maintenance

Solution and services Technology Business Industry Government Education

The tools and technologies the helps business grows and simplify IT are:

Align applications with specific organizational needs and objectives, using Dells global delivery model and experienced industry and technology consultants.

Business Intelligence and Data Warehousing : With business intelligence and data warehouse solutions from Dell Services, they help Benchmark clients data against industry standards to see how they stack up to their competitors. Drive organizational change using performance management indicators. Use collaborative tools such as mobility alerting. Harness predictive analytics to better manage future outcomes and business risks.


Custom Application Development: Using dells strength in multiple technologies, global delivery and best practises client does can create customized application that can cater their needs.

Enterprise resource planning: It includes the following:

Oracle E-business suite: optimising business with oracle E-business from Dell ensures ability to work interactively, innovate and grow globally.

Oracle People-Soft: Deliver best in-class business processes and address todays complex business requirement using next generation technology and people soft enterprise application.

SAP Business: Maximise the value of SAP solution with dell customerfocussed collaborative approach, and a flexible, cost-effective global delivery model.

2. BUSINESS CONSULTANCY: It includes the following services:

Clinical transformation: Discover a comprehensive care delivery approach that improves quality, enhances service, and reduces costs through the effective alignment of people, process and technology.

Corporate Strategy: Charts the course for competitive advantage, organizational growth and sustained success.

It helps in developing: Global corporate strategy Business unit strategy Product/service line strategy

Industry Consulting : Rely on Dell to assess your capabilities, develop strategies, and employ tactics that help you increase revenue and evolve with market and regulatory changes. Process Re-Engineering: Do uninterrupted business around the clock, by identifying and improving inefficient processes, using automation technologies and controlling a global workforce that completes tasks 24/7. Supply Chain Management: Improve supply chains through the development and implementation of lean manufacturing techniques and technology-enabled processes.

Telecom Expense Management : It includes: Management of multiple carriers, their plans, invoices and billing platforms Telecom inventory management Usage and rate optimization Reporting, records keeping and auditing Contract management


3. BUSINESS PROCESS SERVICES : It includes the following:

Customer Management
Improve customer relationship management through a comprehensive contact management solution.

Engineering Services Outsourcing

Design and launch products on time and within budget, using a team of highly skilled engineers from Dell

Finance and Accounting

Improve cash flow, lower transaction processing costs and help ensure compliance with Sarbanes-Oxley through market-leading solutions and their data capture and business processing centres worldwide.

Government Office
Comply with strict regulations, manage funding, improve responsiveness and better serve citizens by leveraging their robust methodologies and government experts.

Healthcare Revenue Cycle and Operations

Improve cash collections, streamline workflow, avoid costly errors and enhance overall efficiency by integrating people, processes and platforms with deep healthcare expertise from Dell.

The services designed to meet the specific challenges of an industry are:

1. Financial Services: The financial services industry is currently facing a severe loss of investor and consumer confidence. The tumultuous economic environment has created external and internal challenges for financial services organizations. The major challenges faced by any industry are:


Seeking ways to reduce operating costs, especially those related to Information Technology (IT) Looking to improve business performance to help tide over the current crisis Searching for a way to enable your resources to focus on tasks that support business strategy.

Dell Services help combat these challenges with end-to-end solutions which include: Consulting solutions Strategic and Technology Consulting, Business Process Re-engineering Applications solutions Application Development, Management, Migration and Re-engineering, Production Support and Testing Operations support Infrastructure Services, Business Process Services.

2. Government and Education Services:

Academic institutions are increasingly serving a diverse student body that is demanding more innovative approaches to teaching and learning. At the same time, IT leaders are under pressure to expand core services for the entire campus environment while also playing a pivotal role in driving greater operational and cost efficiencies. Dell delivers the right technology to help higher education grow and thrive. By using intensive virtualization strategies to address the challenges of academic, administrative and research computing. Dell helps transform campus computing and drive unprecedented levels of efficiency and flexibility.



Mission statement
Dell mission is to be the most successful computer company in the world at delivering the best customer experiences in the capital markets it serves. In doing so Dell will meet customer expectations of: Higher quality. Leading technology. Competitive pricing. Best-in-class services and support. Flexible customisation capability superior.

Vision statement
Its the way we do business. Its the way we interact with the community. Its the way we interpret the world around us, our customers needs, and the future of technology, and the global business climate. Whatever changes the future may bring our vision.



Onsite model Offshore model

Dell is based on the following business model. In onsite/offshore model the outsourcing work is distributed between the service providers onsite centres and the offshore development centre and thereby the clients get the advantage of both type of outsourcing model. 20-30% work is done by the onsite centre and the rest by the offshore centre.

Characteristics of onsite model

Gathering initial information about the project through direct interaction with the client. Understanding the requirements clearly. Planning and initial designing as to how the project will go about Interact directly with the clients to accommodate any changes if there are so as to eliminate or minimise last minute changes. Implementation of project according to the clients expectation and satisfy them. Dealing with client and managing partnership.

Characteristics of offshore model

Understand the specification and come up with the detailed design Responsible for the progress of the project. Ensuring that the outcome matches with the specification given by the client. Crucial and continuous support to the onsite centre.

With the help of these models the client will not have the burden of managing the large onsite team and at the same time can avail the benefit of offshore outsourcing. It is basically used in software development outsourcing as it reduces the cost and the total cost of ownership and the manpower involved is also reduced.



The Accounting standards are a set of guidelines, i.e. , generally accepted accounting principles, issued by the accounting body of the country such as The Institute of chartered Accountants of India, that are followed for preparation and presentation of financial statements. In other words, accounting standards are the norms of accounting policies and practices to direct the treatment of transactions and events that ultimately transforms into financial statements. The financial statements, prepared on basis of set norms providing information to the users enables them to interpret the information better and take correct decision.


Revenue Recognition (AS-9) Accounting for Construction Contract (AS-7)

REVENUE RECOGNITION This accounting standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from

The sale of goods, The rendering of services, and The use by others of enterprise resources yielding interest, royalties and dividends.

This statement does not deal with the following aspects of revenue recognition to which special considerations apply.

Revenue arising from construction contracts, Revenue arising from hire-purchase, lease agreements, Revenue arising from government grants and other similar subsidies, Revenue of insurance companies arising from insurance contracts.

Revenue recognition is mainly concerned with the timing, of recognition of revenue in the statement of profit and loss of an enterprise. Point of time when revenue is recognised for the following transactions: a. Sale of Goods at the time of transfer of significant risks and rewards of ownership to buyer, b. Rendering of Services is usually recognized either by Proportionate completion method or completed service contract method. Proportionate Completion Method: Performance consists of the execution of more than one act and revenue is recognized on a straight line basis over the specific period unless there is evidence that some other method better represents the pattern of performance. Completed Service Contract Method: Performance consists of the execution of a single act & revenue is recognised when the sole or final act takes place. CONSTRUCTION CONTRACT It is negotiated for construction of single assets such as bridge, building dam, roads, ships etc. It may also deal with the construction of number of assets which are closely interdependent or interrelated in terms of design, technology, function or ultimate purpose or use. For example construction of refineries or complex prices of plant and equipment. It includes: Contract for rendering services which are directly related to the construction of the assets Contract for destruction or restoration of assets Contract rendering services which are not directly related to the construction of assets.


There are two types of construction contract: 1. Fixed price contract In this type of contract the contractor agrees to a fixed rate per unit of output which fluctuates in some case. 2. Cost Plus Contract in this type of contract the contractor is reimbursed for allowable or otherwise define cost percent of these cost or a fixed fee


Finance Committee Charter

Purpose: Acting pursuant to Section 141 of the Delaware General Corporation Law and Section 1 of Article IV of the Bylaws (the "Bylaws") of Dell Inc. ("Dell"), the Board of Directors of Dell (the "Board") has established a Finance Committee (the "Committee") for the purpose of overseeing all areas of corporate finance for Dell and its subsidiaries, including capital structure, equity and debt financings, capital expenditures, cash management, banking activities and relationships, investments, foreign exchange activities and share repurchase activities. Membership: The Committee will consist of a minimum of two members of the Board, the majority of whom shall be "independent" under the standards set forth in Dell's Corporate Governance Principles. The members of the Committee will be recommended by the Governance and Nominating Committee of the Board and appointed by and serve at the discretion of the Board. Responsibilities: he Finance Committee shall be responsible for reviewing with Dell's management and shall have the power and authority to approve on behalf of the Board, Dell's strategies, plans, policies and significant actions related to corporate finance, including the following:

Capital structure plans and strategies and specific equity or debt financings; Capital expenditure plans and strategies and specific capital projects; Strategic and financial investment plans and strategies and specific investments; Mergers, acquisitions and divestitures; Cash management plans and strategies and activities relating to cash accounts and cash investments portfolio, including the establishment and maintenance of bank, investment and brokerage accounts; and

Plans and strategies for managing foreign currency exchange exposure and other exposures to economic risks.

Resource and Authority: The Committee shall have the resources and authority to discharge its responsibilities, including the authority, to the extent it deems necessary or appropriate, to retain outside counsel and other advisors. Dell shall provide funding, as determined by the Committee, for payment of compensation to any independent advisors or administrative support employed by the Committee. Any action duly and validly taken by the Committee pursuant to the power and authority conferred under this Charter shall for all purposes constitute an action duly and validly taken by the Board and may be certified as such by the Secretary or other authorized officer of Dell.

Meeting and Reports: The Committee shall hold regular meetings at least four times each year, generally in conjunction with the regularly scheduled meetings of the Board, and such special meetings as the Chair of the Committee or the Chairman of the Board may direct. The Committee shall maintain written minutes of its meetings, which will be filed with the minutes of the Board. At each regularly scheduled meeting of the Board, the Chair of the Committee shall provide the Board with a report of the Committee's activities, recommendations and proceedings.


HP is a technology company that operates in more than 170 countries around the world. We explore how technology and services can help people and companies address their problems and challenges, and realize their possibilities, aspirations and dreams. We apply new thinking and ideas to create more simple, valuable and trusted experiences with technology, continuously improving the way our customers live and work.

No other company offers as complete a technology product portfolio as HP. We provide infrastructure and business offerings that span from handheld devices to some of the world's most powerful supercomputer installations. We offer consumers a wide range of products and services from digital photography to digital entertainment and from computing to home printing. This comprehensive portfolio helps us match the right products, services and solutions to our customers' specific needs.


HP was founded in 1939. Its corporate headquarters are in Palo Alto, Calif. Lo Apotheker is CEO and President. HP is the world's largest IT Company, with revenue totalling $126 billion for fiscal 2010. HP's 2010 Fortune 500 ranking: No. 11.


Stanford University classmates Bill Hewlett and Dave Packard founded HP in 1939. The company's first product, built in a Palo Alto garage, was an audio oscillator - an electronic test instrument used by sound engineers. One of HP's first customers was Walt Disney Studios, which purchased eight oscillators to develop and test an innovative sound system for the movie Fantasia.



Customer loyalty They earn customer respect and loyalty by consistently providing the highest quality and value.

Profit They achieve sufficient profit to finance growth, create value for our shareholders and achieve our corporate objectives.

Growth They recognize and seize opportunities for growth that builds upon our strengths and competencies.

Market leadership They lead in the marketplace by developing and delivering useful and innovative products, services and solutions.

Commitment to employees They demonstrate their commitment to employees by promoting and rewarding based on performance and by creating a work environment that reflects our values.

Leadership capability They develop leaders at all levels that achieve business results, exemplify their values and lead them to grow and win.

Global citizenship They fulfil their responsibility to society by being an economic, intellectual and social asset to each country and community where they do business.



Passion for customers They put their customers first in everything we do.

Trust and respect for individuals They work together to create a culture of inclusion built on trust, respect and dignity for all.

Achievement and contribution They strive for excellence in all they do; each person's contribution is critical to their success.

Results through teamwork We effectively collaborate, always looking for more efficient ways to serve our customers.

Speed and agility They are resourceful and adaptable, and they achieve results faster than their competitors.

Meaningful innovation They are the technology company that invents the useful and the significant.

Uncompromising integrity They are open, honest and direct in their dealings.



The Basic Objective of my project is to spread the financial knowledge of Dell. The main purposes of the project are following: To understand the financial statements. To compare Dell with HP. To analyze ratios of Dell with HP. To find out the best company among Dell and HP. To know the capital structure of Dell and to judge the solvency of company. To know the quality of management.



In view of the objective of the study listed above, a descriptive research design has been adopted. I have tried to interpret already available information and it lays particular emphasis on analysis and interpretation of the existing and available information with both primary and secondary data. Scope of the Study: The scope of the study is identified after and during the study of the project. The study of the working capital is totally based on the trend analysis, ratio analysis, working capital leverage etc. and 4 years annual reports of the company.

Tools and Techniques used in the study:

Tables Bar Graph

Method of Data Collection:

Data is of two kinds: a) Primary Data: Are those data, which are collected fresh and for the first time and this happens to be original in character. b) Secondary Data: Are those data which have already been collected by someone else and which have already been used as per required. There are basically two sources to collect secondary data a) Internally: Provided by the company/organization b) Externally: Various publication of central, state and local Government. Books, magazines, newspapers Internet

The Data Collected for my study was through Secondary Data. Annual Report, books, website


Limitation of the Study:

1. Limited Data: This project has been completed with annual reports of the company; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality.

2. Limited Period: This project is totally based on 3 years annual reports. Conclusion and recommendation are based on such limited data. The trend of last 3 years may or may not reflect the position of the company in the IT market with its competitors.

3. As the data are secondary data so the reliability of the result depends upon the reliability of the data published.

4. Lack of accessibility.

5. Unprecedented changes in Government policies are not considered in the project.


LIQUIDITY RATIO Liquidity ratios measure the short-term solvency, ie the firm ability to pay its current dues. Inadequacy of working capital may bring the entire business operation to a grinding halt because of inability of the enterprise to pay for wages, materials and other regular expenses. The important liquidity ratios are as follows:

CURRENT RATIO This ratio is an indicator of the firms commitment to meet its short-term liabilities. This ratio reveals the relationship between current assets and current liabilities. It is expressed as follows:

Current Assets Current Liabilities

An ideal current ratio is 2:1. The ratio of 2 is considered as a safe margin of solvency due to the fact that if the current assets are reduced to half, i.e., 1 instead of 2, then also the creditors will be able to get their payments in full. A very high current ratio is also not desirable since it means less efficient use of funds. This is because a high current ratio means excessive dependence on long-term sources of raising funds. Long-term liabilities are costlier than current.

Computation YEAR DELL 2008 19880 =1.073 18526 51728 =0.977 52939 2009 20151 =1.356 14859 52539 =1.221 43003 2010 24245 =1.278 18960 54184 =1.096 49403



1.356 1.221 1.073 0.977 Dell HP

1.278 1.096




Interpretation The current ratio of the DELL and HP for the year 2008,2009,2010 are less than the ideal ratio i.e. 2:1. This means that the short term solvency ratio is not favorable.

QUICK RATIO: This ratio reveals the relationship between quick assets and current liabilities. This ratio is also termed as acid test ratio or liquidity ratio. It is expressed as follows:

Quick Ratio =

Current Assets [Inventory + Prepaid Expense] Current Liabilities

Objectives: The main objective of computing this ratio is to measure the ability of the firm to meet its short-term obligations as and when due without relying upon the realization of stock.


Computation: YEAR DELL 2008 18700=1.009 18526 43849 =0.828 52939 2009 19284 =1.297 14859 46411 =1.079 43003 2010 23194 =1.223 18960 47718 =0.965 49403


1.297799314 1.223312236 1.01 0.83 Dell HP 1.079250285 0.96589276




Interpretation The quick ratio of the dell is favorable than HP. This shows that company are able to meet its short term obligations.


ABSOLUTE LIQUID RATIO: This is a variation of quick ratio. This ratio is also known as Super Quick Ratio or Cash Position Ratio. This ratio establishes a relationship between absolute liquid assets and current liabilities. It is expressed as follows:

Absolute Liquidity Ratio = Cash in hand + cash at bank + Marketable securities Current Liabilities



2008 7972 =0.430 18526 10153 =0.191 52939

2009 9092 =0.611 14859 13279 =0.308 43003

2010 11008 =0.580 18960 10929 =0.221 49403




0.611885053 0.580590717


0.30879241 0.191786773 0.221221383

Dell HP




Interpretation The absolute liquid ratio of Dell and HP is less than the standard ratio. But Dell has more cash in hand to meet its day to day expenses as compared to HP.

PROFITABILITY RATIO The main objective of a company is to earn profits because profits are necessary to survive and grow over a long period of time. Profitability is an indication of the efficiency with the operations of the business is carried on. Owners are interested to know the profitability as it indicates the return which they can get on their investments. Stanley mentioned that Profitability is the strength and weakness of an enterprise. Profitability ratios are generally based on sales and capital employed.


Profitability ratio based on sales

GROSS PROFIT RATIO This ratio establishes relationship of gross profit on sales to net sales of a firm. Gross profit *100 Net sales

Gross profit ratio =

Objectives Gross profit ratio is a reliable guide to the adequacy of selling prices and efficiency of trading activities. It determine the selling price so that there is adequate gross profit to cover the operating expenses, fixed charges ,dividends and building up reserves.



2008 12278 *100 = 20.08% 61133 28665 *100 = 24.21% 118364

2009 11726 *100 = 19.19% 61101 27028 *100 = 23.59% 114552

2010 10113*100 = 19.11% 52902 29944 *100 = 23.75% 126033




24.22% 20.08% 23.59% 19.19% 19.12% 23.76%

Dell HP




Interpretation The gross profit ratio of HP is more than DELL for all the given years.This means that HP earns more profit than DELL in the following years.

PROFIT MARGIN RATIO This profit establishes a relationship between net income and net sales, and is generally expressed in percentage. It is calculated as under :

Profit Margin Ratio

Net Income* 100 Net Sales

Interpretation This ratio is a symbol of profitability and efficiency of the business. Higher the ratio the more favourable for the business as it denotes sound management and efficiency. Lower ratio reveals decline in profits and mismanagement.



2008 2947 *100 = 4.8% 61133 8329 *100 = 7.04% 118364

2009 2478 *100 = 4.06% 61101 7660 *100 = 6.69% 114552

2010 1433 *100 = 2.71% 52902 8761 *100 = 6.95% 126033



7.04% 6.69% 6.95%

4.82% 4.06% Dell 2.71% HP




Interpretation The profit margin ratio of DELL is less than HP for all the year. There is a large variation in the profit margin ratio. This shows that HP is more favorable and the management is more efficient.


Profitability ratios based on capital employed

RETURN ON TOTAL ASSETS RATIO This ratio measures a relationship between net profits after tax & interest and total assets. The objective of calculating this ratio is to find out how efficiently the total assets have been used by the management. This ratio reveals the profitability of total assets; hence it throws light on how efficiently the assets are utilized by the management. Higher the ratio, more beneficial for the concern.

Return on total assets ratio =

Net profit * 100 Average total assets







2947 *100 = 21.38% 13780.5 8329 *100 = 14.69% 56665.5

2478 *100 = 18.70% 13250 7660 *100 = 13.34% 57399.5

1433 * 100 = 8.51% 16826 8761 *100 = 14.07% 62251.5




21.39% 18.70% 14.70% 13.35%



Dell HP




Interpretation The return to total assets ratio of DELL is more than HP. This means that DELL has utilized its total assets in a favorable ways than HP.

ACTIVITY RATIO Activity or Efficiency Ratios Activity ratios are computed to evaluate the efficiency with which the firm manages and utilities its assets. These ratios are also called turnover ratios because they indicate the rapidity with which assets are being converted or turned over into sales. Some of the important ratios are calculated below:


INVENTORY TURNOVER RATIO This ratio establishes a relationship between cost of goods sold or sales and average stock. This ratio tells the rate at which stock is converted into sales. This ratio is indicates whether investment in inventory is efficiently used or not. It, therefore, explains whether investment in inventories is within proper limits or not. It is expressed as follows:

Inventory Turnover Ratio

= Net Sales Closing Inventory

Interpretation Higher ratio shows that more sales are being produced by a unit of investment in stocks. Companies in which the stock turnover ratio is high generally work on comparatively low margin of profit.

Computation YEAR DELL 2008 61133 = 51.8 1180 118364 = 15.02 7879 2009 61101 = 70.47 867 114552 = 18.69 6128 2010 52902 = 50.33 1051 126033 = 19.49 6466







Dell HP 15.02 18.69 19.49




Interpretation The inventory turnover ratio of DELL is more than HP in all the three years i.e. (51.8 times, 70.47 times, 50.33 times). This shows that sales have been produced in the year and the company is working in comparatively low margin profit.

TOTAL ASSETS TURNOVER RATIO This ratio is calculated by dividing net sales or cost of goods sold by total assets employed in business. This ratio indicates how effectively and profitably the fixed assets of a business are used. It is expressed as follows:

Total Assets Turnover Ratio

Net Sales Total Assets


Components Total Assets mean current assets plus fixed assets and adjustment of depreciation, i.e., fixed assets are taken at written down value. Total assets does not include fictitious assets but can include intangible assets like goodwill, patents, copyright, etc. Importance This ratio is important and appropriate in manufacturing concerns since sales are produced not only by the use of working capital but also by the capital invested in fixed assets. If the ratio is lower than expectation it indicates that the assets of the organization are not being effectively and properly utilized. The management of the concern is weak. High ratio indicates that the assets are effectively utilized but much higher ratio is a symbol of over trading of the organization.



2008 61133 = 51.8 1180 118364 = 15.02 7879

2009 61101 = 70.47 867 114552 = 18.69 6128

2010 52902 = 50.33 1051 126033 = 19.49 6466




2.21 2.3





Dell HP




Interpretation Total assets turnover ratio of DELL i.e.(2.21 times,2.3times,1.57times) is more than HP i.e. (1.04 times,0.997 times,1.01 times). This shows that DELL has utilised its assets more effectively than HP.

LEVERAGE RATIO: Leverage or Capital Structure Ratios Leverage or Capital Structure Ratios are calculated to judge the long-term financial position of the firm. These ratios reveal the funds provided by owners and outsiders. The owners equity is treated as a margin of safety by creditors; if the equity base is thin, the creditors risk will be high. Thus, leverage ratios are calculated to measure the financial risk and the concerns ability of using debt for the benefit of shareholders.


Usually the following ratios are calculated to judge the long term financial solvency of the firm: DEBT EQUITY RATIO This ratio indicates the relationship between long term debts and shareholders fund. The objective of calculating this ratio is to measure the relative proportion of debt and equity in financing the assets of a firm. Components There are two components of this ratio which are as under: Outsiders Fund: This means long term loan (whether secured or unsecured), e.g. debentures, bonds, loans from financial institutions. Shareholders Fund: This means equity share capital plus preference share capital plus reserves and surplus minus fictitious assets.

Importance A high Debt-Equity ratio shows that the claims of creditors are greater than those of owners. A very high ratio is unfavourable from the owners point of view. This causes hindrance in the firms operations due to the increasing pressure and interference raising additional debt. A low debt equity ratio shows a greater claim of owners than creditors. From the creditors point of view it represents a larger margin of safety since owners equity is treated as margin of safety by creditors.


YEAR DELL 3735 362

2008 = 10.31 4271 1898

2009 = 2.25 5641 3417

2010 = 1.65


38942 = 5.07 7676

40517 = 2.89 13980

40449 = 2.65 15258





Dell HP 2.89 2.25 1.65 2.65




Interpretation Debt equity ratio of DELL is very high than HP in the year 2008 which is very unfavourable for the owners. But in the year 2009 and 2010 the debt equity ratio of DELL is not more than HP which shows that DELL has a favourable debt and equity than HP.


Ratio analysis judge the earning capacity, financial soundness and operating efficiency of a business. It has provided a detailed analysis of all the various 1. The ratios being calculated showed the profitability, financial position (liquidity and solvency) and operating efficiency of the company. 2. The current assets and current liabilities of the company and the current ratio and quick ratio of Dell is in a good position. 3. Dell has not earned a favourable profit in the previous three year. Also the sales of the company is not good 4. The company has maintained its inventory level and the assets are also being efficiently utilised. 5. The debt equity ratio which shows the composition of debt and equity capital is low in 2009 and 2010 than HP.


1. The current ratio of Dell is less than the ideal ratio of 2:1 which is not favourable. The company need to maintain its current assets and current liabilities in an efficient way. 2. The absolute liquid ratio of Dell is less than the standard ratio of 1:1.Company should have more cash in hand to meets its day to day obligations. 3. In itself the gross profit ratio of the company has declined from 2008 to 2009 and from 2009 to 2010. This shows that the company is not earning profit. Also, the gross profit ratio of Dell is less than HP in all the three years. Thus the net sales need to increase so as to earn more profit. 4. According to the calculation the return to total assets ratio is more than HP in the year 2008 and 2009. But in 2010 HP has more return than Dell. The Company need to maintain its position by efficient utilisation of total assets. 5. According to the calculations the debt equity ratio of Dell is very high than HP in 2008 which is very unfair. And further there is a decrease in debt equity ratio in 2009 and 2010. 6. The calculation shows that the inventory turnover ratio of Dell is more than HP. Dell needs to maintain the position and the sales volume should also be maintained and should be increased.



Assets(in Million of dollars) Cash and Equivalents Restrictable Cash Marketable Securities Receivables Inventories Prepaid Expenses Current Deferred Income Taxes Other Current Assets Total Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Intangibles Cost in Excess Non-Current Deferred Income Taxes Other Non-Current Assets Total Non-Current Assets Total Assets Current Liabilities(in Millions of dollar) Accounts Payable Short Term Debt Notes Payable Accrued Expenses Accrued Liabilities Deferred Revenues Current Deferred Income Taxes Other Current Liabilities Total Current Liabilities Long Term Debt Deferred Income Tax Other Non-Current Liabilities Minority Interest Capital Lease Obligations Preferred Securities of Subsidiary Trust Preferred Equity Outside Shareholders' Equity Total Non-Current Liabilities Total Liabilities Preferred Shareholder's Equity Common Shareholder's Equity Total Equity Total Liabilities & Shareholder's Equity

2008 7,764 208 7,693 1,180 3,035 19,880 4,614 -1,946 2,668 780 1,648 2,585 7,681 27,561 Jan-08 11,492 225 1,920 2,486 2,403 18,526 362 4,938 5,300 23,826 3,735 3,735 27,561

2009 8,352 740 6,443 867 3,749 20,151 4,510 -2,233 2,277 724 1,737 1,611 6,349 26,500 Jan-09 8,309 113 1,544 2,649 2,244 14,859 1,898 5,472 7,370 22,229 4,271 4,271 26,500

2010 10,635 373 8,543 1,051 3,643 24,245 4,652 -2,471 2,181 1,694 4,074 1,458 9,407 33,652 Jan-10 11,373 663 3,458 3,040 426 18,960 3,417 5,634 9,051 28,011 5,641 5,641 33,652


Income(in Million of dollar) Operating Revenue Adjustments to Revenue Cost of Revenue Gross Operating Profit Selling/General/Admin Expense Research & Development EBITDA (Operating Income Before Depreciation) Depreciation & Amortization Operating Income Interest Income Other Income, Net Total Income Before Interest Expense (EBIT) Interest Expense Income Before Tax Income Taxes Minority Interest Net Income from Continuing Operations Net Income from Discontinued Operations Net Income from Total Operations Normalized Income Extraordinary Income/Loss Special Income/Charges Income from Cum. Effect of Acct Change Income from Tax Loss Carryforward Other Gains Total Net Income 2008 61,133 -48,855 12,278 -7,538 -610 4,130 -607 3,523 496 -64 3,872 -45 3,827 -880 2,947 2,947 3,030 -83 2,947 2009 61,101 -49,375 11,726 -7,102 -663 3,961 -769 3,192 180 47 3,417 -93 3,324 -846 2,478 2,478 2,480 -2 2,478 2010 52,902 -42,789 10,113 -6,465 -624 3,024 -852 2,172 12 2,184 -160 2,024 -591 1,433 1,433 1,433 1,433



Assets(in Millions of Dollars) Cash and cash equivalent Short- term investments Accounts receivables Financing receivables Inventory Other current assets Total current assets Property, plant and equipment Long term financing receivables Goodwill Purchase intangible assets Total assets Liabilities(in Millions of Dollars)

2008 10153 93 16928 2314 7879 14361 51728 10838 10468 32335 7962 113331 2008

2009 13279 55 16537 2675 6128 13865 52539 11262 11289 33109 6600 114799 2009

2010 10929 5 18481 2986 6466 15317 54184 11763 12225 38485 7848 124503 2010

Short-term borrowings Account payable Employee compensation, benefits Taxes on earnings Deferred revenue Accrued restructuring Other accrued liabilities Total current liabilities Long-term debt Other liabilities Commitments and contingencies Common stock($0.01 par value ) Additional paid up capital Retained earnings Accumulated other comprehensive loss Total stockholder's equity Total liabilities -

10176 14917 4159 869 6287 1099 15432 52939 7676 13774 24 14012 24971 -65 38942 113331

1850 14809 4071 910 6182 1109 14072 43003 13980 17299 24 13804 29936 -3247 40517 114799

7046 14365 4256 802 6727 911 15296 49403 15258 19061 24 11569 32695 -3837 40449 124503



(In Millions of Dollars) Net revenue Products Services Financing income Total net revenue Cost and expenses Cost of product Cost of services Financing interest Research and development Selling and administrative Amortization of purchased intangible Assets Restructuring charges Acquisition-related charges Total operating expenses Earnings from operations Interest other net Earnings before tax Provision for taxes Net earnings Gross profit

2008 91697 26297 370 118364

2009 74051 40124 377 114552

2010 84799 40816 418 126033

64342 20028 329 3543 13326 1012 270 41 102891 10473 10473 2144 8329 28665

56503 30695 326 2819 11613 1578 640 242 104416 10136 -721 9415 1755 7660 27028

65064 30723 302 2959 12585 1484 1144 293 114554 11479 -505 10974 2213 8761 29944


Books Referred:s
Pandey I.M, Financial Management (Ninth Edition): Vikas Publishing House Pvt. Ltd (Noida). Grewal T.S, Analysis of Financial Statement(2006 Edition): Sultan Chand and sons Ltd(New Delhi)