PLANNING ANALYSIS FOR HEWLETT-PACKARD
As you can see, Hewlett Packard can stand to make some improvements in the areas of liquidity and inventory turnover. In regards to liquidity, we recommend HP decrease their liabilities and increase receivables. This would eventually place HP equal to the industry average of 1:1; however, they must keep in mind that it could increase their senior officer's attrition rate or face the possibility that their marketing techniques may become outdated and inconsequential. We believe that HP would experience an increase in sales and profitability leading to better customer service and loyalty, and improving the quality of their products.
In addition, we recommend HP shrink their inventories in an effort to increase their cash supply by streamlining their operations. More specifically, we think HP should establish better sales and financing forecasting systems, which would place their turnover ratio more in line with industry standards. Furthermore, there would be more turnovers, which in turn would create both new technology and new products. On the other side, HP could run the risk of their new forecasting system not giving the desired results leading to obsolete inventories. Also, they could face the problem of not having enough inventories to meet customer's needs during a drastic rise in sales. One must remember that streamlining operations may be harder to implement in a reasonable amount of time resulting in multiple unexpected problems.
In summary, we have looked at the plans for Dell, Gateway, and HP's individual working capital strategies, which involve adjusting each company's cash flow to better suit their needs. We discussed the cash conversion cycle and the relevance that is placed on it when projecting a company's future. From this we identified which of the liquidity or efficiency ratios were under-performing relative to the industry standard. We have offered potential solutions that might help the three companies attain higher profitability in the years to come. With analysis of potential consequences, both positive and negative, we hope that these companies will make the correct decision.
