Dell Ratio Analysis
Operating Performance
ROE and ROA (strength)
Dell’s ROE and ROA have different patterns through the life of the case. Dell’s ROA has ranged from a high 18.2% in 1999 then gradually drop to 9.2% in 2008. Dell’s ROE has ranged from 43.7% in 1999 to 61.2% in 2008. Both ROA and ROE dropped significant amount in 2001. Dell’s ROE and ROA are well above the Federal Nominal 10-year T bills rates in all yeas and exceed HP’s ROE and ROA in all years. In 2001, HP’s ROE and ROA drop to the lowest point through the life of the case, because HP acquired Compaq and almost doubled size of the company.
In 2001, Dell’s ROA and ROE drop to the lowest point through the life of the case. This large drop is due to the net income declined (42.77%) in 2001 compare to 2000. In 2006, Dell’s ROA and ROE dropped almost 5% and 7%. This drop also is due to net income declined (27.69%) in 2006. In 2008 Dell’s ROA dropped 2% and ROE dropped 10%. This large drop is due to the recession in 2008. Using leverage to maintain higher returns to investor is not a bad thing. However, too much debt may cause serious financial problem. Dell’s ROE exceeds ROA by almost 50 %( average) from 2005 to 2008. In 2007, Dell’s ROE exceed ROA by 60%, which means the high returns to investor are based on use of leverage. In contrast, Dell’s debt to equity ratio is much higher than HP’s debt to equity ratio. This means HP’s returns to investor are more solid than Dell.
P/E ratio (weakness) The stock market is pessimistic about Dell’s future earning ability. This is due to the recession in 2008. Dell’s major business is selling computer and accessories, in the recession consumer tends to spend money on life essential goods such as food and gasoline. Dell’s P/E ratio is ranged from 70.7 in 1999 and gradually decreases to 14.2 in 2008. In contrast, HP’s P/E ratios fluctuate from high 32.77 to low 13.59 through the life of the case except in 2001 and 2002. In 2001 HP’s P/E ratio increased by 108 to 140.71 and in
ROE and ROA (strength)
Dell’s ROE and ROA have different patterns through the life of the case. Dell’s ROA has ranged from a high 18.2% in 1999 then gradually drop to 9.2% in 2008. Dell’s ROE has ranged from 43.7% in 1999 to 61.2% in 2008. Both ROA and ROE dropped significant amount in 2001. Dell’s ROE and ROA are well above the Federal Nominal 10-year T bills rates in all yeas and exceed HP’s ROE and ROA in all years. In 2001, HP’s ROE and ROA drop to the lowest point through the life of the case, because HP acquired Compaq and almost doubled size of the company.
In 2001, Dell’s ROA and ROE drop to the lowest point through the life of the case. This large drop is due to the net income declined (42.77%) in 2001 compare to 2000. In 2006, Dell’s ROA and ROE dropped almost 5% and 7%. This drop also is due to net income declined (27.69%) in 2006. In 2008 Dell’s ROA dropped 2% and ROE dropped 10%. This large drop is due to the recession in 2008. Using leverage to maintain higher returns to investor is not a bad thing. However, too much debt may cause serious financial problem. Dell’s ROE exceeds ROA by almost 50 %( average) from 2005 to 2008. In 2007, Dell’s ROE exceed ROA by 60%, which means the high returns to investor are based on use of leverage. In contrast, Dell’s debt to equity ratio is much higher than HP’s debt to equity ratio. This means HP’s returns to investor are more solid than Dell.
P/E ratio (weakness) The stock market is pessimistic about Dell’s future earning ability. This is due to the recession in 2008. Dell’s major business is selling computer and accessories, in the recession consumer tends to spend money on life essential goods such as food and gasoline. Dell’s P/E ratio is ranged from 70.7 in 1999 and gradually decreases to 14.2 in 2008. In contrast, HP’s P/E ratios fluctuate from high 32.77 to low 13.59 through the life of the case except in 2001 and 2002. In 2001 HP’s P/E ratio increased by 108 to 140.71 and in