Home Depot Company Analysis


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Home Depot Company Analysis Accounting Class

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  • The first two categories are home owners who either want to complete the project themselves or have Home Depot complete the project for them. The professional customers are usually general contractors, business owners or repairmen.
  • Analysis the current ratio, though not high, does imply a positive working capital. From this ratio it appears that it is not close to the industry standard. It is, however, in a better working capital position then its' closest competitor. Home Depot's Quick Ratio has been in a decline over recent years. It implies that they are running the risk of becoming dependent on inventory and other "less" current assets to liquidate short term debt. Because they are a retail center, this might not be as big of and issue as in other industries. Their competitor, Lowes is in an even worse position. Currently, Home Depot can pay off 46% of its debt. This percentage has dropped from 2006 (59% ) and seems to be hovering at the less than half number. Because they have been hit hard by the recession, they might have leveraged themselves more until retail sales improves.
  • This ratio shows that Home Depot is definitely on the low end of the industry scale. However, so is Lowe's. Having the top two industry leaders in this situation definitely illustrates the effect the economy has had on the industry. Even though both Home Depot and Lowe's are considered low price leaders they are not showing this by this ratio. It is our belief that all of the activity ratios are going to be low due to the recessive nature of the current economy. These ratios reinforces the Home depot's statements in the annual report regarding this economy.
  • The calculation done by our group and the calculation in the Statement of Earnings in the annual report does not match up. They quote a higher number. Based on our findings, Home Depot is showing weaknessin the net income earned per share. Please see the pay out ratio as it relates to the results of this relationship. Home Depot makes up for the lower earnings per share in the percentage dividends that it distributes to its owners. It definitely beats Lowes. Home Depot has been consistent in giving a decent dividend to its' shareholders over the past years.
  • Home Depot is financed more through equity than debt. Home Depot is well with in the industry standard to meet its interest payments. A weak cash flow generation could be a result of the current economic situation. There are no issues with the book value because the market value is well above this value.
  • 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>