Dell & Hewlett Packard: Capital Expenditures

Dell & Hewlett Packard: Capital Expenditures

There are many ways a company can choose to spend excess capital. Capital expenditures is defined as, spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years (Wall Street Words, 2013). In simpler terms, capital expenditures provide value and added revenue to the company for the future. Both Dell and HP are considered direct competitors in the personal computer and small business solutions markets. Analysis of both company's capital structures and expenditures will reveal some similarities and distinct differences in capital spending.

Dell is a large direct sale computer company based in the Unites States. The company was founded by Michael Dell in 1984. Dell has transformed themselves from their humble beginnings, which began in a dorm room Texas to the computer giant it has become today (Dell.com, 2013). The growth of the company was instantaneous, in the first year of business, the company went on to earn over 6 million dollars. Growing year over year to the multibillion dollar enterprise of today. Dell has evolved from the early days of the personal computer manufacturer to a manufacturer of solutions for businesses of varying sizes, while continuing to grow their original personal computer mainstay. With this growth came increasing capital expenditures, which has helped them to continue to grow and increase their revenue.

Dell saw capital expenditures over the last 3 years of $675, $444 and $367 million in 2012 and 2011 respectively (Dell Annual Reports 2010-2012). Their primary focus on capital spending being the acquisition of property, plant and equipment in order to further fuel their global expansion and infrastructure expansion, which is the future plan for the company. With their investment in expansion, Dell saw a slight reduction in their debt ratio, which has fallen over the last 3 years from a high of .9536 in 2011 to .8877 in 2012 (it was .8798 in 2010), this ratio has stayed relatively consistent over the last three years with little fluctuation in levels. This compared to the debt ratio's of Hewlett Packard which has seen a significant increase in debt to assets in the same time period. They have gone from a low of .5514 in 2010, .7931 for 2011 and now at an all-time high of 1.267 (Ycharts.com, 2013). Hewlett Packard has had a significant decrease in their capital expenditures from $3.2 billion in 2010, $3.5 billion in 2011 to $773 million in 2012 (Hewlett Packard Annual Reports 2010-2012). The driver of the higher capital spending for HP in 2011 and 2010 were their increase spending in R&D. They invested over $3 billion in research in both 2010 and 2011, which was the majority of their capital spending outlays. Hewlett Packard's spending on R&D was based on the premise that they want to continue to be