Financial ratio analysis
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Compute the following ratios for Dell Computers based on the 2005 & 2006 Annual Reports which are attached.
o Current ratio
o Debt ratio
o Return on equity (ROE)
o Return on investment (ROI)
Analyze the ratios in relation to profitability, liquidity, and financial leverage. If you are assigned to the lender cluster, state whether you would choose to accept or reject a loan of several million dollars to this company. If you are assigned to the investor cluster, state whether you would purchase this company's stock.
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Solution Summary
The solution explains, solves and analyzes for key ratios (current ratio, debt ratio, ROE and ROI) for Dell corporation. The solution also gives recommendations from a lender and investor viewpoint.
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The ratios listed help analyze a company based on profitability (ROE and ROI), liquidity (Current ratio) and financial leverage (Debt ratio). Below are the current ratios, explanations, calculations and analysis. At the end of the calculations I give a reccomendation based on the financial data. One thing to know about financial ratios is that the interpretation is based on who is looking at it. A risk averse person (someone who hates taking risks) will have a different interpretation from data than that of someone who is risk loving or likes to take some risk every now and then.
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Current Ratio: A current ratio is used to determine whether a not a company has enough resources to cover its current debt. Generally, you want this number to be higher than 1 and equal to or higher than the industry average. The formula is Total current assets (Sum of ...
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