Contents

1 Background:...................................................................................................................2
2 Ratio Analysis:...............................................................................................................3
2.1 Essence of ratio analysis:........................................................................................3
2.2 Ratio Analysis between Dell and HP......................................................................4
2.2.1 Liquidity Ratios:...............................................................................................4
2.2.2 Current Ratio:...................................................................................................4
2.2.3 Quick or Acid-Test Ratio..................................................................................4
2.2.4 Solvency Or Gearing Ratios:............................................................................5
2.2.5 Debt Equity ratio:.............................................................................................5
2.2.6 Profitability Ratio.............................................................................................6
2.2.7 Gross Profit Ratio:............................................................................................6
2.2.8 Net Profit Ratio:...............................................................................................6
2.2.9 Return On Capital Employed...........................................................................7
2.2.10 Return On Equity..........................................................................................7
2.2.11 Inventory Turnover Ratio................................................................................8
2.2.12 Earning Per Share.........................................................................................8
2.2.13 Interest coverage ratio:.................................................................................9
2.2.14 Capital structure of Dell and HP..................................................................9
3 Synthesis of HP and Dell.............................................................................................10
4 Conclusion:..................................................................................................................10
 Finance for Non-Financial Managers
1 Background:
Dell Inc. is an American computer technology company based in Round Rock, Texas,
United States, that develops, sells, repairs and supports computers and related products
and services.
 Naming its founder, Michael Dell, the company is one of the largest technology
companies in the world, employing more than 103,300 people worldwide.
 Dell sells computers, servers, data storage devices, network switches, software,
inputs, HDTVs, cameras, printers, MP3 players and electronics built by other
manufacturers.
 The company is best known for its innovative operations in supply chain
management and electronics marketing, especially its straightforward sales model
and "building its own order" or "stop ordering" production method - delivering
individual PCs tailored to customer specifications. Dell was an innocent hardware
dealer with its many presence, but a few years ago with the acquisition of Perot
Systems, Dell entered the IT services market.
 Since the Company has always purchased more from storage and communication
systems, with the aim of expanding their portfolio in providing computers only in
providing complete business customer solutions.
 Dell is listed at No. 51 on the Fortune 500 list. In 2012 it was the third largest PC
vendor in the world after HP and Lenovo. Dell is currently the # 1 sender of PC
monitors in the world.
 Dell is the sixth largest company in Texas in terms of total revenue, according to
Fortune magazine.
 It was a publicly traded company (NASDAQ: DELL), as well as part of the NASDAQ-
100 and S&P 500, until it was taken over privately from the sale that closed on
October 30, 2013.
Hewlett-Packard Company or HP is an American technology company
headquartered in Palo Alto, California, United States. Provides hardware, software and
services to consumers, small and medium enterprises (SMBs) and large businesses,
including customers in government, health and education sectors.
 The company was founded in a single car garage in Palo Alto by William "Bill"
Redington Hewlett and Dave Packard. HP is the world's leading PC manufacturer
and has been around since 2007, fighting the challenge of Chinese manufacturer
Lenovo, according to Gartner.
 Focuses on computer building, data storage, and networking hardware, software
design and service delivery.
 Lines The main product lines include personal computer hardware, standard
business and industrial servers, related storage devices, network products, software
and a wide range of printers and other image products.
 HP markets its products at home, small and medium enterprises and businesses
directly by distributing online, e-commerce and office retailers, software partners
and major technology retailers.
 HP also has services and business consulting with its products and partner
products. In 2012 it became the largest PC retailer in the world with unit sales.
 Events Hewlett-Packard's corporate events included the release of part of its
business such as Agilent Technologies in 1999, its merger with Compaq in 2002, a
sponsor of Mission: Space in 2003, and the purchase of EDS in 2008, which
resulted in a combined $ 1 billion -118,4 in 2008 and the Fortune 500 rate of 9 in
2009.
 In November 2009, HP announced the acquisition of 3Com in a contract that closes
on April 12, 2010. On April 28, 2010, HP announced the acquisition of Palm, Inc.
with $ 1.2 billion. On September 2, 2010, HP won its 3PAR bidding battle with a $
33 ($ 2.07 billion) budget donation, which Dell declined to match

2 Ratio Analysis:
Ratio analysis is an important method of financial analysis. It shows the relationship
between two mathematical expressions and the relationship between two or more
objects.
 Financial ratio is the average amount that is selected from the entity's financial
statements. There are many standardized measures used to assess the overall
financial position of an organization or another organization.
 Financial estimates are used by management within the firm, current and
potential shareholders of the company and corporate lenders. Financial analysts
use a financial scale to compare strengths and weaknesses in various companies.
 The amounts used to calculate the financial estimates are taken from the balance
sheet, income statement and cash flows of the company, with the exception of
Ratio which is always expressed as a decimal, 0.10, or equal percentage, such as
10%.

2.1 Essence of ratio analysis:

Financial analysis helps us to understand how profitable a business is, if it has enough
money to pay off debts and whether its shareholders can be happy or not. Financial
estimates allow for comparisons:
1. between companies
2. among industries
3. between different periods of one company
4. between one company and its industry scale
To analyze the performance of one company, its current estimates will be compared with
its previous estimates. When comparing financial estimates over a period of time, it is
called a time series or trend analysis.

2.2 Ratio Analysis between Dell and HP.

2.2.1 Liquidity Ratios:
 Two liquidity ratios, the current ratio and the acid concentration test, are the
most important measurements in almost all measurement analyzes and are also
very easy to use.
 Credit ratings provide information about a company's ability to meet its short-
term financial obligations. They are especially important for those who extend
short-term debt to the firm. The two most commonly used chemical dosages are
current and accelerated measurements
 Although credit ratings are very useful for lenders / providers and temporary
bankers, they are also important for financial managers who must meet the
obligations of credit providers and various government agencies.
 The company's ability to convert temporary assets into cash to cover debts is
especially important when lenders demand payment. Liquid analysts and
borrowers often use financial estimates to determine whether a company will be
able to continue as an ongoing concern.
 A thorough analysis of the disbursement level can help to identify weaknesses in
the financial position of the business. In general, the higher the rate, the higher
the security level the company has to pay off short-term debt.

2.2.2 Current Ratio:

Current Asset
Current Ratio =
Current Liabilities

YEAR DELL HP
2007 1.12 1.21
2008 0.84 0.98
2009 0.91 1.22

2.2.3Quick or Acid-Test Ratio

The essence of this ratio is a test that shows that the firm has short-term assets sufficient
to cover its liabilities without selling the inventory. Debt-based support should therefore
be paid almost immediately.
There are two terms for liquid assets and liquid liabilities in this formula, Liquid assets
are all current assets excluding inventories and prepaid expenses, because prepaid costs
cannot be converted to cash. Liquid loans cover all current debts except bank overdraft
and cash loan because they do not have to be repaid immediately.

Quick Ratio = Liquid Asset

Liquid Liabilities
YEAR DELL HP
2007 1.08 0.45
2008 0.79 0.83
2009 0.87 1.00

2.2.4 Solvency Or Gearing Ratios:

Gearing is about the relationship between the term debt that a business has and the
capital used. The idea is that these relationships should be balanced.
It is a general term that describes a financial ratio that compares a certain type of equity
of the owner (or money) of a loan. Stockbrokers and long-term lenders may be
interested in this ratio.

2.2.5 Debt Equity ratio:

This ratio reflects the related claims of creditors and shareholders in respect of the
company's assets, the relationship of the formation of the credit rating between the
loans and the principal amount to measure the company's long-term financial
settlement. The rating reflects the balance of credit and equity in financing the assets of
the firm.
Debt equity ratio = Debt/ Shareholders fund
 The debt side covers all long-term firm debts of the firm. A shareholder is
a dividend and a deposit of $ and more. Decreased credit equity increases the
level of protection enjoyed by debtors.
 The amount of the debt defined by the principal paymaster, the debt is
defined as a long-term debt and your preferred repayment amount before 12
years and shareholders deposit $ is defined as additional interest and interest-
redeemed after 12 years and reserves.
 The general norm for this ratio is 2:1. on case of capital intensive
industries as norms of 4:1 is used for fertilizer and cement industry and a norms
of 6:1 is used for shipping units.
YEAR DELL HP
2007 0.11 0.44
 2008 0.16 0.58
2009 0.26 0.63

2.2.6 Profitability Ratio

 As the name itself suggests, this ratio is calculated to determine
profitability of the firm. The basic objective of almost every business is to earn
profit which is essential for survival of the business.
 A business needs profits not only for its existence but also for its expansion
and diversification. The investors want an adequate return on their investments,
workers want higher wages, creditors want higher security for interest and loan
and the list could continue.
 It is a class of financial metrics that are used to assess a business's ability
to generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time.
 For most of these ratios, having a higher value relative to a competitor's
ratio or the same ratio from a previous period is indicative that the company is
doing well.

2.2.7 Gross Profit Ratio:

 The gross profit margin ratio tells us the profit a business makes on its cost
of sales. It is a very simple idea and it tells us how much gross profit our business
is earning.
 Gross profit is the profit we earn before we take off any administration
costs, selling costs and so on. So we should have a much higher gross profit
margin than net profit margin.
 High ratios are favorable in this, since it indicates the business is earning a
good return on the sale of its merchandise.

Gross Profit Ratio = Gross Profit /Net sales X 100

YEAR DELL HP
2007 0.25 0.17
2008 0.24 0.19
2009 0.24 0.18

2.2.8 Net Profit Ratio:

This shows the portion of sales available to owners after all expenses. A high profit ratio
is higher profitability of the firm. This ratio shows the earning left for shareholder as
percentage of Net sales.Net Margin Ratio measures the overall efficiency of production,
Administration selling, financing, pricing and Taste Management.
Net Profit Ratio = Net Profit After Tax/Net Sales X 100

YEAR DELL HP
2007 0.07 0.04
2008 0.07 0.05
2009 0.07 0.04

2.2.9 Return On Capital Employed

Return on capital employed (ROCE) is a measure of the returns that a business is
achieving from the capital employed, usually expressed in percentage terms.
Capital employed equals a company's Equity plus Non-current liabilities (or Total Assets
− Current Liabilities), in other words all the long-term funds used by the company.
ROCE indicates the efficiency and profitability of a company's capital investments.
ROCE should always be higher than the rate at which the company borrows otherwise
any increase in borrowing will reduce shareholders' earnings, and vice versa; a good
ROCE is one that is greater than the rate at which the company borrows.
ROCE = PROFIT BEFORE INTEREST AND TAX / SHAREHOLDERS
FUND+LONG TERM BORROWIN

YEAR DELL HP
2007 40% 21%
2008 38% 23%
2009 27% 19%

2.2.10 Return On Equity

Return on equity (ROE) is the amount of revenue returned as a percentage of
shareholders' shares. It reveals how much the company has gained compared to the
total number of shareholders held in the balance sheet. ROE is one of the most
important financial measurements and profit metrics. It is usually called the final rate or
‘mother of all ratios’ can be found in the company’s financial statements. It measures
how much a company earns from an investment owner, and how the profits use its
company.

ROE= NET PROFIT / SHAREHOLDERS FUND

YEAR DELL HP
2007 60% 19%
 2008 79% 21%
2009 58% 19%

2.2.11 Inventory Turnover Ratio

 The inventory turnover ratio that shows how effectively an asset is managed
effectively by comparing the cost of assets sold with medium inventory over a
period of time.
 This measures how often the amount is "converted" or sold over time. In other
words, it estimates how many times a company has sold its value to establish its
annual value. The company with $ 1,000 of standard design and $ 10,000 sales
has successfully sold its ten times more.
 This measure is important because the total amount of profit depends on the two
main components of the operation. The first part is the stock purchase.
 If purchasing large quantities of goods during the year, the company will have to
sell a large amount of the asset to maximize its profits. If the company cannot sell
these large amounts of inventory, it will incur storage costs and other holding
costs. The second component is sales. Sales have to match inventory purchases
otherwise the inventory will not turn effectively. That's why the purchasing and
sales departments must be in tune with each other.
INVENTORY TURNOVER RATIO = COST OF GOODS SOLD/ AVERAGE
INVENTORY

YEAR DELL HP
2007 5% 37%
2008 9% 32%
2009 6% 26%

2.2.12 Earning Per Share

Earnings per share, also called revenue per share, the amount of revenue expected from
the average income earned per share of the remaining stock.
In other words, this is the amount of money each shareholder would receive if all the
profits were distributed to the remaining shares at the end of the year.
Earnings per share are also calculated to show how much the company has a profit for
shareholders. Therefore, the profit of a large company per share can be compared to the
profit of a small company per share.
Clearly, this calculation is largely influenced by how many stocks stand out. Therefore, a
large company will have to divide its income between more stocks compared to a smaller
company.
EARNING PER SHARE = NET INCOME - PREFFERED DIVIDEND/ WEIGHTED
AVERAGE COMMON SHARE OUTSTANDING

YEAR DELL HP
2007 1.14 2.82
2008 1.31 2.98
2009 1.25 3.14

2.2.13 Interest coverage ratio:

The interest coverage ratio (ICR) is a measure of a company's ability to meet its
interest rates. The rate of interest cover is equal to the interest earned before interest
and taxes (EBIT) for a period of time, usually one year, divided by interest costs at the
same time.
Interest rate is the number of times a company can make interest payments on its debt
through its EBIT. It decides how easy the company can pay interest on the outstanding
debt.
The interest rate is also known as interest cover, the credit service rate or the credit
service rating.
Interest rate is calculated by dividing the company's income before interest and taxes
(EBIT) into the company's interest rate at the same time.
Interest coverage ratio = EBIT / Interest expenses

YEAR DELL HP
2007 68 31
2008 76 33
2009 34 32

2.2.14 Capital structure of Dell and HP

 Both companies have seen an increase in long-term debt to corporate financial
institutions. However, the increase is sharp in Dell compared to HP. At the end of
January 2009, 63% of Dell's capital structure contained loans. This is a very large
debt and affects the future borrowing power of the company.
 Changes to HP vs. Dell capital structure
 It is evident that after the markets have grown, companies have been competing hard
for market leadership. Significant investments have been made in the areas of
research and development and areas to improve product quality.
 Therefore, IT computer companies have seen an increase in debt as a state-of-the-art
industry. However, Dell’s significant investment in R&D and quality improvement
has placed a huge debt burden on the company’s structure.
 If the company retains its current position of market leadership and takes a
competitive market share based on this investment, even though Dell suffers in the
short term, the company will benefit in the long run.
 However, it would be to Dell's advantage if they would increase equity and measure
monetary value during the global economic downturn.

3 Synthesis of HP and Dell

Dell and HP are major players in the IT global hardware market. Both North American
companies have also been competing for market leadership continuously in the past.
Dell was founded in 1984 as a company that assembles and sells IT hardware directly to
the consumer while HP was established as early as 1939 as a technology company.
By comparing business size, HP is almost four times (US $ 111Billion) of Dell's market
capitalization (US $ 26 Billion). Since companies come from the same industry and
come from the same local region, comparisons between companies are high.

4 Conclusion:
 Standing Understanding the presentation of financial information is required.
There may be situations where such information will need to be adjusted before
deciding.
 For example, there may be one completed item included in the recurring financial
statements (restructuring costs) and investment decisions, which may be
significant. Therefore, understanding financial presentation and proper
preparation can be important.
 In addition, it is important to ensure that comparisons of account sets are
adjusted using the same accounting policies. There can be a variety of accounting
practices based on industry, geography and cultural reasons. That will need to be
neutral if two sets of accounts can be compared.
 There may be certain industrial goals that need attention. For example, if an
investor compares the yields of technology companies with other industries, the
share yield is much lower.
 However, it is common in the industry to return profits mainly to R&D and
provide significant benefits to investors. Such practices need to be properly
understood before financial analysis is analyzed.
 There may be errors in the financial statements (intentionally or unintentionally)
that may create barriers to understanding the company's true image through
financial analysis.
 Therefore, the analyst needs to investigate any irregularities identified in the
financial patterns to ensure that the results do occur. To eliminate such errors,
obtaining information from a trusted source is essential.
 Therefore, the financial analysis may reveal useful information for the companies
involved. However, the information used must be obtained from a reliable source,
checked for informal financial patterns, and adjusting to reduce any specifics is
not essential to that process.