Although a change in credit policy can have a significant effect on a firm's cash conversion cycle, it is difficult for a firm to be significantly more restrictive in their policy and continue to maintain their customer base. All three companies have a relatively low collection period.
As shown in Figure 4, Dell's asset turnover ratio is double the average.
Figure 4: Asset Turnover Ratio
Nevertheless, Dell has difficulties in generating further business because, "a high ratio compared with other firms in the same industry…may prove difficult to generate further business without additional investment" (299). They are considered "very lean", meaning that their cash conversion cycle is extremely quick. Dell's operations are set up in such away that they do not require much in the way of finished-goods inventories. This quickness results in an immense inventory turnover rate. It is important to remember that to generate further business, a firm needs more parts and more assets to build extra product to meet the increase. To ensure a healthy growth, cash needs should also increase to meet this increase in assets. Dell's asset turnover ratio may indicate that they are in need of extra long-term financing to give them room to build further business.
