This PPT slide, part of the 159-slide Strategy Frameworks Manual PowerPoint presentation, presents a comparative analysis of financial performance between Compaq and Dell, focusing on their respective drivers of value and profit. It utilizes a profit tree framework to dissect the components contributing to Compaq's lower return on capital compared to Dell.

Key elements include operating margin and asset turnover, which are critical metrics in evaluating profitability. Compaq's operating margin is significantly impacted by higher costs of goods sold (COGS) at 50% of sales versus Dell's 40%. Additionally, Compaq incurs higher sales, general, and administrative expenses, which account for 20% of sales compared to Dell's 15%. This disparity in operating margin is a fundamental factor in Compaq's overall performance.

The analysis also highlights asset turnover, where Compaq shows a lower fixed asset turnover ratio of 50% compared to Dell's 67%. This indicates that Compaq is less efficient in utilizing its assets to generate sales. The slide breaks down these ratios further, detailing how they contribute to the overall return on capital employed (ROCE) for both companies.

The insights derived from this analysis can guide management in identifying specific areas that require attention to enhance profitability. By focusing on the highlighted discrepancies in cost structure and asset utilization, executives can develop targeted strategies to improve financial performance. This structured approach not only clarifies the underlying issues, but also serves as a roadmap for potential remedial actions.

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