Submitted by: Submitted by ajmacdonald78
Views: 300
Words: 454
Pages: 2
Category: Business and Industry
Date Submitted: 06/01/2011 09:48 AM
Andrew MacDonald
Short Term Finance
HW Assignment #2
1) The spreadsheet defines the Unneeded Liquidity as the product of the COGS of Dell from 1995 times the ratio of the difference in Inventory Days between Dell and Compaq divided by the total days in the year. This unneeded liquidity is a quantitative measure of the advantages that Dell will realize as a result of keeping low inventory days. Having fewer inventory days gives Dell an advantage over Compaq by freeing up cash to be used for other business needs. By having fewer inventory days Dell does not need to maintain the high levels of liquidity that Compaq does to continue business effectively.
2) As a result of having lower inventory Dell reducing the obsolescence of its stock. By keeping low inventory Dell is able to adapt quickly to a rapidly changing market, thus not risking their inventory become obsolete and taking a loss for unsellable inventory.
3) Companies need financing as they grow in order to add the infrastructure needed to support the growth. Especially in the fast growth industry that Dell was competing in, waiting to save the capital needed to finance the assets needed to grow internally would leave the company in the dust compare to their competitors.
4) The Financing needs are less than the total asset growth as a result of the company investing their profits back into the organization to support the growth plan. By investing the profits back into the company, the organization can reduce the interest paid on the financing and improve their bottom line.
5) CHANGE REQUIRED IF NOTHING ELSE CHANGES
Decreasing A/R: 28.95 Days
Decreasing Inventory: 36.25 Days
Increasing A/P: 36.25 Days
Increasing Margin: 11.3%
CHALLENGES TO CHANGE
Decreasing A/R: Changing customers expectations and fighting the industry standards
Decreasing Inventory: Missed business opportunities if unable to meet customer demands.
Increasing A/P: Alienating suppliers and...