The Home Depot Inc. Ratio Analysis Matthew Roewer Argosy University Module 1, Assignment 3 10/06/2015 Introduction The Home Depot, Inc. is a home improvement retailer. It deals sells home improvement products and building materials. It operates The Home Depot stores. Listed in NYSE in 1984. Trades as HD in New York Stock Exchange. Ratio Analysis-Liquidity Ratios Current Ratio Refers to current assets divided by current liabilities. As at 2/1/2015, the current ratio was 1.36. The current ratio as at 2/2/2014 was 1.42 Quick Ratio/Acid Test Ratio Indicates the company’s short term liquidity. Quick Ratio =(Current assets-Inventories)/Current liabilities As at 2/1/2015, the quick ratio was 0.37. As at 2/2/2014, the quick ratio was 0.39. Current ratio is a tool used in finance to measure if the enterprise has enough resources to meet its debts over the following 12 months. Quick ratio is a measure of the ability of the company to meet its short-term obligations using the most liquid assets. This ratio, therefore, excludes the inventories from current assets. It is also referred to as acid ratio test ratio (Tamari, 2010) 3 Liquidity Ratios Cont’d It is a liquidity ratio Cash Ratio = (Cash + Cash equivalents)/Total current Liabilities As at 2/1/2015, the cash ratio was 0.15 while as at 2/2/2014, the cash ratio was at 0.18. Cash Ratio Cash ratio is majorly used to measure liquidity of the company. It can determine, therefore, how faster the firm can repay its short term liabilities. A strong cash ratio can be used by creditors when deciding the amount of debt they are willing to extend to the party in need (Palepu & Healy, 2014). 4 Profitability Ratios Gross Margin It is a profitability ratio calculated by dividing the gross profit by revenue. For the period ending 2/1/2015, the gross margin was at 35%. The gross margin was at 35% also for the period ending 2/2/2014. Operating Margin Calculated by dividing he operating expenses by revenue For the period ending 2/1/2015, the operating margin was 13% For the period ending 2/2/2014, the operating margin was 12% Gross margin refers to the total sales revenues less its costs of goods sold of a company divide by the total sales revenue. The higher this percentage, the more amount the firm retains on each dollar of sales used to service its other obligations and costs. Operating margin is one of the measures of profitability. It gives an indication of how much of each dollar of revenues that is left after the operating expenses and costs of goods sold are all considered (Tamari, 2010) 5 Profitability Ratios Cont’d Pre-Tax Margin For the period ending 2/1/2015, the pre-tax margin was 12% For the period ending 2/2/2015, the pre-tax margin was 11%. Profit Margin Refers to the ratio of profits earned to the total assets over some defined period. For the period ending 2/1/2015, the operating margin was 8%. For the period ending 2/2/2014, the operating margin was 7%. ...

1. The Home Depot Inc.
Ratio Analysis
Matthew Roewer
Argosy University
Module 1, Assignment 3
10/06/2015
Introduction
The Home Depot, Inc. is a home improvement retailer.
It deals sells home improvement products and building
materials.
It operates The Home Depot stores.
Listed in NYSE in 1984.
Trades as HD in New York Stock Exchange.
Ratio Analysis-Liquidity Ratios
Current Ratio
Refers to current assets divided by current liabilities.
As at 2/1/2015, the current ratio was 1.36.
The current ratio as at 2/2/2014 was 1.42
Quick Ratio/Acid Test Ratio
Indicates the company’s short term liquidity.
Quick Ratio =(Current assets-Inventories)/Current liabilities
As at 2/1/2015, the quick ratio was 0.37.
As at 2/2/2014, the quick ratio was 0.39.
Current ratio is a tool used in finance to measure if the
enterprise has enough resources to meet its debts over the
following 12 months. Quick ratio is a measure of the ability of

2. the company to meet its short-term obligations using the most
liquid assets. This ratio, therefore, excludes the inventories
from current assets. It is also referred to as acid ratio test ratio
(Tamari, 2010)
3
Liquidity Ratios Cont’d
It is a liquidity ratio
Cash Ratio = (Cash + Cash equivalents)/Total current Liabilities
As at 2/1/2015, the cash ratio was 0.15 while as at 2/2/2014, the
cash ratio was at 0.18.
Cash Ratio
Cash ratio is majorly used to measure liquidity of the company.
It can determine, therefore, how faster the firm can repay its
short term liabilities. A strong cash ratio can be used by
creditors when deciding the amount of debt they are willing to
extend to the party in need (Palepu & Healy, 2014).
4
Profitability Ratios
Gross Margin
It is a profitability ratio calculated by dividing the gross profit
by revenue.
For the period ending 2/1/2015, the gross margin was at 35%.
The gross margin was at 35% also for the period ending
2/2/2014.
Operating Margin
Calculated by dividing he operating expenses by revenue
For the period ending 2/1/2015, the operating margin was 13%
For the period ending 2/2/2014, the operating margin was 12%

3. Gross margin refers to the total sales revenues less its costs of
goods sold of a company divide by the total sales revenue. The
higher this percentage, the more amount the firm retains on each
dollar of sales used to service its other obligations and costs.
Operating margin is one of the measures of profitability. It
gives an indication of how much of each dollar of revenues that
is left after the operating expenses and costs of goods sold are
all considered (Tamari, 2010)
5
Profitability Ratios Cont’d
Pre-Tax Margin
For the period ending 2/1/2015, the pre-tax margin was 12%
For the period ending 2/2/2015, the pre-tax margin was 11%.
Profit Margin
Refers to the ratio of profits earned to the total assets over some
defined period.
For the period ending 2/1/2015, the operating margin was 8%.
For the period ending 2/2/2014, the operating margin was 7%.
Profit margin is a measure used to gauge the firm’s financial
health. It is the ratio of profits earned to the total assets. Pre-tax
profit margin considers the profits of a company and all
expenses EXCEPT taxes. Through this, the company can be
prevented from using tax breaks to influence the company’s
profit margin (Tamari, 2010).
6
Profitability Ratios Cont’d
Pre-Tax ROE
Refers to the ratio of the pre-tax profit and the total equity
average

4. For the period ending 2/1/2015, the pre-tax ROE was 107%
For the period ending 2/2/2014, the pre-tax ROE was 68%
After-Tax ROE
Refers to the ratio of net income after tax and the average
shareholder’s equity.
For the period ending 2/1/2015, the After-Tax ROE was 68%
while for the period ending 2/2/2014, the After-Tax ROE stood
at 43%
Return On Equity (ROE) is one of the most important financial
ratio used to measure profitability. It is a measure of the
profitability of a corporation. It reveals the amount of profit
that a company generates using the money that shareholders
have invested in the company (Palepu & Healy, 2014).
7
Conclusions from the Ratios
Liquidity Ratios
Current ratios for both 2013 and 2014 are both more than 1.The
company can, therefore, meet its debt in the next 12months.
2014, however, was better than 2013 (1.36 to 1.42)
Since quick ratios are less than 1, the company cannot
currently meet its current obligations using liquid assets.
Cash ratios for both years are less than 0.2. This is acceptable.
Profitability Ratios
Gross margin for both years remained at 13% while there was a
slight increase in 2014 to 13% from 12% in operating margin.
Higher values of ROE are favourable. This means that the
period ending 2/1/2015 was better than that ending 2/2/2014.
2014 Sustainable Growth Rate
Sustainable Growth Rate (SGR) = ROE * (1 – dividend-payout
Ratio)

5. = 0.3235 * (1 – 0.4128)
SGR = 0.1899
= 19%.
This is a good sustainable growth rate for the company.
Sustainable Growth Rate, SGR, refers to the realistically
attainable growth that an enterprise can maintain without
running into problems. It is the maximum growth rate that a
company can sustain without the need for it to increase its
financial leverage. In calculation of the Sustainable Growth
Rate, one must know the Return On Equity (ROE) of the
company as well as its dividend-payout ratio (Palepu & Healy,
2014).
9
References
Palepu, K., & Healy, P. (2014). Business analysis &
valuation: Using financial statements : Text and cases (5th ed.).
Mason, Ohio: South-Western.
Retrieved from https://ycharts.com/companies/HD/key_stats
Tamari, M. (2010). Financial ratios: Analysis and prediction.
London: P. Elek.
The Home Depot: 2014 annual report. (2014). Atlanta, GA.: The
Home Depot.