Wednesday, November 02, 2005

DELL dancing on the thin ice

DELL's balance sheet looks horrible.

The balance sheet is just like your bank account balance against your bills. It shows how much money you have and how much you owe. One of the very important items are those that are "current", basically, the amount of cash and the amount of bills that must be paid now. There is a measure called "current ratio", which is the "current assets" divided by "current liability", it's like your money in the bank divided by the total amount of bills. If this number is bigger than 1, you have more money than bills and you are safe. If this number is smaller, you have more bills than money and you are in trouble. If current ratio is one, then your money is the same as bills, and you are living on the fringe.

So, let's examine DELL's balance sheet:

Bills to pay: $14.37 billion

Cash: $6.34 billion
Short term investments: $2.71 billion
Net receivables: $4.44 billion

See the problem? Adding up the cash and cash equivalents, you get only $13.45 billion. Almost one billion short of paying the bills.

However, there is a mysterious $2.739 billion "other current assets", which keeps DELL away from insolvency.

If I were a DELL investor, I would be very interested in knowing what this $2.739 billion other current assets are.

You never know when it's the last straw to break the camel's back, like the case of Enron (Imagine what if Enron survived till today with energy so expensive and energy stocks going through the roof...)

I predicted that DELL will be the next Enron.


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