Following links shows the financial staement for both Home Depot and Lowes. Home
ID: 2792524 • Letter: F
Question
Following links shows the financial staement for both Home Depot and Lowes.
Home depot: http://quotes.wsj.com/HD/financials/annual/income-statement
Lowes: http://quotes.wsj.com/LOW/financials/annual/income-statement
Identify two items or issues that cannot be derived from the financial statements of the two companies that you selected for your research.
Explain why these items or issues would be of concern to investors and other stakeholders. In your rationale, address the specific interests of the different users of financial statements.
Compare and contrast the two companies in terms of how well or how poorly they are performing in the areas of profit, debt, and asset turnover.Use appropriate ratios in your analysis. Indicate strategies for possible improvement in each area.
Explanation / Answer
Two items or issues that cannot be derived from the financial statements of the two companies that have been selected for your research Financial statements are the window to the financial health ,well-being and longevity of companies. But there still are many matters of concern that are not addressed by the financila statements alone For example, the quality and the capability of the top management ,in charge of various important decision-making portfolios are not known explicitly--- that the investorswould very much want to know for the safety of their investment Any change in customer /vendor base--which may reflect in increased /decreased revenues/costs--- the investor needs to know to ensure profitability of operations Effect of inflation on the figures found on the financial statements --this may project a different figure for the investor--- to discount or upgrade the values mentioned. Fiscal year is Feb-Jan $ Millions. HOME-DEPOT INC. LOWE'S CoS 2017 2016 2015 2014 2013 2017 2016 2015 2014 2013 Sales/Revenue 94,595 88,519 83,176 78,812 74,754 65,017 59,074 56,223 53,417 50,521 Sales Growth 6.86% 6.42% 5.54% 5.43% - 10.06% 5.07% 5.25% 5.73% - Gross Income 30,559 28,575 27,303 25,763 24,284 20,975 19,086 18,073 17,014 15,804 Gross Profit MarginGross Income/Sales 32.31% 32.28% 32.83% 32.69% 32.49% 32.26% 32.31% 32.15% 31.85% 31.28% Net Income 7,957 7,009 6,345 5,385 4,535 3,062 2,534 2,682 2,270 1,945 Net MarginNet Income/Sales 8.41% 7.92% 7.63% 6.83% 6.07% 4.71% 4.29% 4.77% 4.25% 3.85% Total Current Assets 17,724 16,484 15,302 15,279 15,372 12,000 10,561 10,080 10,296 9,784 Total long-term assets 25,242 25,489 24,644 25,239 25,712 22,408 21,252 21,747 22,436 22,882 Total Assets 42,966 41,973 39,946 40,518 41,084 34,408 31,813 31,827 32,732 32,666 Total asset turnover=Sales/Total assets 2.2 2.1 2.1 1.9 1.8 1.89 1.86 1.77 1.63 1.55 Total Current Liabilities 14,133 12,524 11,269 10,749 11,462 11,974 10,492 9,348 8,876 7,708 Total long-term liabilities 24,500 23,133 19,355 17,247 11,845 16,000 13,667 12,511 12,003 11,101 Total Liabilities 38,633 35,657 30,624 27,996 23,307 27,974 24,159 21,859 20,879 18,809 Total Equity 4,333 6,316 9,322 12,522 17,777 6,434 7,654 9,968 11,853 13,857 Current Ratio=Current assets/Current liablities 1.25 1.32 1.36 1.42 1.34 1.00 1.01 1.08 1.16 1.27 Long-term Debt/Total Assets 0.57 0.55 0.48 0.43 0.29 0.47 0.43 0.39 0.37 0.34 Total Liabilities/Total Assets 0.90 0.85 0.77 0.69 0.57 0.81 0.76 0.69 0.64 0.58 Long-term Debt/Total Equity 5.65 3.66 2.08 1.38 0.67 2.49 1.79 1.26 1.01 0.80 Given the same level of gross margin over the 5 years ,operating costs are consistently more for Lowe's as compared to Home Depot's .So net income % is less. $ sales earned per $ of assets employed is better for Home-Depot in all the years as measured by the asset turnover ratio The capacity to meet current obligations are consistently better for Home Depot. As the current ratios of all the 5 years are more than that of Lowe's Long-term debt to total assets shows more employment of outside funds by Home-Depot than Lowe's There are more liabilities per $ of assets in Home-Depot compared to Lowe's in all the 5 years Debt funding is more pronounced in Home-Depot than Lowe's