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Home Depot Company Analysis

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Home Depot Company Analysis Accounting Class

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Home Depot Company Analysis

  1. 1. Analyst Team Christina Caamano Eric Schafer Susan Tatara
  2. 2. <ul><li>Home Depot Described </li></ul><ul><li>Past Performance </li></ul><ul><li>Future Performance </li></ul><ul><li>Investment Recommendation </li></ul>
  3. 3. <ul><li>World’s largest home improvement retailer </li></ul><ul><li>2,200 stores located in the U.S, Mexico, China, Puerto Rico, Canada, Guam and the Virgin Islands </li></ul><ul><li>Sells building materials, home improvement, lawn/garden products and a variety of services. </li></ul>
  4. 4. <ul><li>Do-it-yourself </li></ul><ul><li>Do-it-for-me </li></ul><ul><li>Professional customers </li></ul>
  5. 5. <ul><li>Net earnings was $2.3 Billion </li></ul><ul><li>Diluted earnings per share:$1.34 </li></ul><ul><li>Net sales: $71.3 Billion </li></ul><ul><li>Operating income: $4.4 Billion </li></ul><ul><li>Gross Profit: 24.0 Billion </li></ul>
  6. 6. <ul><li>Merchandise Inventories asset: </li></ul><ul><li>Remained at similar level for 2 years </li></ul><ul><li>Largest asset (inventory driven company) </li></ul><ul><li>We expect this number will decrease by a small amount in fiscal year 2009…. </li></ul>
  7. 7. <ul><li>Buildings asset: Increased by 4% </li></ul><ul><li>Home Depot purchased more buildings in fiscal year 2008 </li></ul><ul><li>Home Depot could place properties on market as a “sale lease back”. </li></ul><ul><li>This would result in added value and increased revenue. </li></ul>
  8. 8. <ul><li>Furniture fixtures and equipment asset </li></ul><ul><li>Construction in progress asset </li></ul><ul><li>Short term debt liability </li></ul><ul><li>Current installments of long term debt liability </li></ul><ul><li>Total liabilities </li></ul>
  9. 9. <ul><li>LIQUIDITY : </li></ul><ul><li>2008 2007 Industry Lowe’s </li></ul><ul><ul><li>Current Ratio 1.20 1.15 1.20 1.15 </li></ul></ul><ul><ul><li>Quick Ratio 0.13 0.14 0.10 0.08 </li></ul></ul><ul><ul><li>Cash debt 0.46 0.45 NA 0.52 </li></ul></ul>
  10. 10. <ul><li>ACTIVITY : </li></ul><ul><li>2008 2007 Industry Lowe’s </li></ul><ul><ul><li>AR T/O 63.91 34.52 63.90 0.00 </li></ul></ul><ul><ul><li>Inventory T/O 4.22 4.18 4.20 4.01 </li></ul></ul><ul><ul><li>Asset T/O 1.13 1.10 4.96 1.50 </li></ul></ul>
  11. 11. <ul><li>PROFITABILITY : </li></ul><ul><li>2008 2007 Industry Lowe’s </li></ul><ul><ul><li>Profit Margin 0.03 0.06 NA 0.05 </li></ul></ul><ul><ul><li>RR on assets 0.04 0.06 6.37 0.07 </li></ul></ul><ul><ul><li>EPS 1.34 2.38 NA 1.51 </li></ul></ul>
  12. 12. <ul><li>COVERAGE : </li></ul><ul><li>2008 2007 Industry Lowe’s </li></ul><ul><ul><li>Debt to Asset 0.57 0.60 0.58 0.45 </li></ul></ul><ul><ul><li>Time Interest 6.99 10.41 NA 13.52 </li></ul></ul><ul><ul><li>Cash debt 0.22 0.14 NA 0.28 </li></ul></ul>
  13. 13. <ul><li>Liquidity: </li></ul><ul><li>Cash flow from operations </li></ul><ul><li>Net cash in financing activities </li></ul><ul><li>Current cash debt coverage ratio decreased a bit in 2008 fiscal year from 0.46 to 0.45 </li></ul>
  14. 14. <ul><li>Net cash </li></ul><ul><li>Leases </li></ul><ul><li>Commercial paper programs </li></ul><ul><li>Stock repurchase program </li></ul>
  15. 15. <ul><li>Write offs </li></ul><ul><li>Rationalization charges </li></ul><ul><li>Current economic conditions and relationship to decline in sales… </li></ul>
  16. 16. <ul><li>Compensation discussion and analysis </li></ul><ul><li>Off balance sheet arrangements </li></ul>
  17. 17. <ul><li>FIFO Method </li></ul><ul><li>In Canada a weighted average inventory system was utilized in 2008 </li></ul><ul><li>In Fiscal Year 2008, inventory was reduced while maintaining a favorable in-stock rate </li></ul>
  18. 18. <ul><li>Change in top level management </li></ul><ul><li>Non GAAP results </li></ul><ul><li>Discontinued operations </li></ul><ul><li>Revenue recognition </li></ul>
  19. 19. <ul><li>HOLD – if you currently own this stock </li></ul><ul><li>BUY - good investment opportunity </li></ul><ul><li>Home Depot is financially sound and will survive the economic downturn… </li></ul>
  20. 20. <ul><li>Questions </li></ul>

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