Dell, Inc: Strategy for success, business risks, SOX disclosures, 10-K, objectives
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The questions in this exercise are based on Dell, Inc. To answer the questions, you will need to download Dell's Form 10-K for the fi scal year ended January 28, 2005 by going to www.sec.gov/edgar/searchedgar/companysearch.html. Input CIK code 826083 and hit enter. In the gray box on the right-hand side of your computer screen defi ne the scope of your search by inputting 10-K and then pressing enter. Select the 10-K with a filing date of March 8, 2005.
Required:
1. What is Dell's strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?
2. What business risks does Dell face that may threaten its ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks? (Hint: Focus on pages 7-10 of the 10-K.)
3. How has the Sarbanes-Oxley Act of 2002 explicitly affected the disclosures contained in Dell's 10-K report? (Hint: Focus on pages 34-35, 59, and 76-78.)
4. Is Dell a merchandiser or a manufacturer? What information contained in the 10-K supports your answer?
5. What are some examples of direct and indirect inventoriable costs for Dell? Why has Dell's gross margin (in dollars) steadily increased from 2003 to 2005, yet the gross margin as a percent of net revenue has only increased slightly?
6. What is the inventory balance on Dell's January 28, 2005 balance sheet? Why is the inventory balance so small compared to the other current asset balances? What competitive advantage does Dell derive from its low inventory levels? Page 27 of Dell's 10-K reports a figure called the cash conversion cycle. The cash conversion cycle for Dell has consistently been negative. Is this a good sign for Dell or a bad sign? Why?
7. Describe some of the various types of operating expenses incurred by Dell. Why are these expenses treated as period costs?
8. List four different cost objects for Dell. For each cost object, mention one example of a direct cost and an indirect cost.
[LO1, LO2, LO5, LO6].
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Solution Summary
The solution examines Dell, Inc. The strategy for success and business risks are examined.
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Question 1
Dell's strategy for success is product leadership customer value proposition. According to the company's 2005 10-K filing, "Dell's global market leadership is the result of a persistent focus on delivering the best possible customer experience by selling products and services directly to customers" (Dell, Inc., 2005). Moreover, Dell's focus on maintaining a highly efficient manufacturing and supply chain management organization "[provides] provide customers with superior value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use" (Dell, Inc., 2005). Lastly, the idea of 'product leadership customer value proposition' is included in Dell's key tenets of business strategy which includes 1) A direct relationship is the most efficient path to the customer; 2) Customers can purchase custom-built products and custom-tailored services; 3) Dell is the low-cost leader; 4) Dell provides a single point of accountability for its customers; and 5) Non-proprietary standards-based technologies deliver the best value to customers.
Question 2
One of the business risks Dell faces that may threaten its ability to satisfy stockholder expectations is foreign exchange risk. The company's operations are located very varied ...
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