Home Depot
Financial Analysis
Overview
This paper is the final project for Finance 300 spring semester class held at Marlboro Grad School and will provide a high level financial analysis of “The Home Depot” a home improvement specialty retailer that enjoys a dominate position in that market space.
The company had 2,269 retail stores worldwide in 2014 and is the largest home improvement retailer in the world. The Home Depot’s stock is traded on the New York Stock Exchange (NYSE: HD).
“The Home Depot revolutionized the home-improvement industry by offering a wide selection of merchandise, low prices, and exemplary customer service to both the professional contractor and the do-it-yourself customer. Before the advent of Home Depot, small mom-and-pop stores, carrying a limited and specific selection of merchandise, dominated the industry and typically emphasized sales to the professional contractor. As a result, home-improvement projects often required driving to several stores to obtain the necessary materials. By contrast, the Home Depot stores offer a one-stop shopping warehouse. The average Home Depot store is approximately 130,000 square feet and is stocked from floor to ceiling with some 40,000-50,000 different products. An emphasis on size and volume allows the Home Depot to remain profitable by selling more for less. This, in turn, allows the Home Depot to negotiate lower prices from the merchandise vendors, with the savings passed on to the consumer” The benchmark organization for comparison is Lowes (NYSE: LOW). Lowes is the second largest home improvement retailer worldwide. In 2014 Lowes had 1840 stores worldwide. “The company went public in 1961 and began trading on the New York Stock Exchange in 1979 (NYSE: LOW). During this time, U.S. housing starts soared and professional builders became Lowe 's loyal customers, accounting for the majority of Lowe’s business. In 1982, Lowe’s had our first billion-dollar sales year, earning a record profit of $25 million. Around this time, Lowe’s stores recognized the emergence of a new type of customer: do-it-yourself homeowners seeking to improve the value of their properties.” Data was gathered from Thomsonone Banker: http://tobsefin.swlearning.com/ (account required). Google Finance: https://www.google.com/finance Yahoo Finance: http://finance.yahoo.com/ Stock Analysis on the Net : https://www.stock-analysis-on.net/NYSE/Company/Home-Depot-Inc All dollar and stock numbers used in this document are in millions. Ratios Key Ratio Analysis Liquidity ratios: Home Depot’s Current Ratio is ranked lower than 76% of the 850 companies in the Global Home Improvement Stores industry. …show more content…
The current ratio is a liquidity ratio that measures a company 's ability to pay short-term obligations. Home Depot’s Current ratio is below industry average. It improved during the period from 2013 to 2014 only to decline again to 2011 levels. Quick ratio has also declined during the period. Liquidity problems may arise if cash flow is low, resulting in short term debt payment challenges. Lowes the benchmark company has greater challenges in this area.
Home Depot 01/31/15 01/31/14 01/31/13 01/31/12 01/31/11 Quick Ratio 0.28 0.31 0.34 0.34 0.16 Current Ratio 1.36 1.42 1.34 1.55 1.33
Lowes 01/31/15 01/31/14 01/31/13 01/31/12 01/31/11 Quick Ratio 0.06 0.10 0.09 0.16 0.16 Current Ratio 1.08 1.16 1.27 1.28 1.40
Home Depot Current Ratio
Industry Median: 1.56 vs. HD: 1.06
Industry Standards comparison: http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1306 Asset Ratios Home Depot’s asset ratio trends are encouraging. Proper handling of assets is key to controlling inventory levels and expenses associated with capital or resource acquisition to create inventory. Home Depot has improved every ratio during the time period. Home Depot’s asset turnover ratio and inventory days held ratio is notable higher that Lowes. In the sector due to inventory build up, inventory turnover ratio sequentially …show more content…
Annual Data Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15
ROIC 20.95 16.57 13.80 9.46 11.22 13.26 15.56 18.48 22.68 26.57
Home Depot Inc Quarterly Data Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14 Jan15 Apr15
ROIC 17.26 20.86 30.66 23.46 17.79 23.12 35.91 26.45 23.35 28.40
EVA
12 months ended Feb-15 Feb-14 Feb-13 Jan-12 Jan-11
Net operating profit after taxes (NOPAT) 7,266 6,279 5,570 4,883 4,214
Cost of capital 12.48% 12.45% 12.77% 12.47% 12.45%
Invested capital 32,203 31,785 32,146 31,670 31,406 Economic profit 3,248 2,323 1,465 932 304
Financial Analysis
Overview
This paper is the final project for Finance 300 spring semester class held at Marlboro Grad School and will provide a high level financial analysis of “The Home Depot” a home improvement specialty retailer that enjoys a dominate position in that market space.
The company had 2,269 retail stores worldwide in 2014 and is the largest home improvement retailer in the world. The Home Depot’s stock is traded on the New York Stock Exchange (NYSE: HD).
“The Home Depot revolutionized the home-improvement industry by offering a wide selection of merchandise, low prices, and exemplary customer service to both the professional contractor and the do-it-yourself customer. Before the advent of Home Depot, small mom-and-pop stores, carrying a limited and specific selection of merchandise, dominated the industry and typically emphasized sales to the professional contractor. As a result, home-improvement projects often required driving to several stores to obtain the necessary materials. By contrast, the Home Depot stores offer a one-stop shopping warehouse. The average Home Depot store is approximately 130,000 square feet and is stocked from floor to ceiling with some 40,000-50,000 different products. An emphasis on size and volume allows the Home Depot to remain profitable by selling more for less. This, in turn, allows the Home Depot to negotiate lower prices from the merchandise vendors, with the savings passed on to the consumer” The benchmark organization for comparison is Lowes (NYSE: LOW). Lowes is the second largest home improvement retailer worldwide. In 2014 Lowes had 1840 stores worldwide. “The company went public in 1961 and began trading on the New York Stock Exchange in 1979 (NYSE: LOW). During this time, U.S. housing starts soared and professional builders became Lowe 's loyal customers, accounting for the majority of Lowe’s business. In 1982, Lowe’s had our first billion-dollar sales year, earning a record profit of $25 million. Around this time, Lowe’s stores recognized the emergence of a new type of customer: do-it-yourself homeowners seeking to improve the value of their properties.” Data was gathered from Thomsonone Banker: http://tobsefin.swlearning.com/ (account required). Google Finance: https://www.google.com/finance Yahoo Finance: http://finance.yahoo.com/ Stock Analysis on the Net : https://www.stock-analysis-on.net/NYSE/Company/Home-Depot-Inc All dollar and stock numbers used in this document are in millions. Ratios Key Ratio Analysis Liquidity ratios: Home Depot’s Current Ratio is ranked lower than 76% of the 850 companies in the Global Home Improvement Stores industry. …show more content…
The current ratio is a liquidity ratio that measures a company 's ability to pay short-term obligations. Home Depot’s Current ratio is below industry average. It improved during the period from 2013 to 2014 only to decline again to 2011 levels. Quick ratio has also declined during the period. Liquidity problems may arise if cash flow is low, resulting in short term debt payment challenges. Lowes the benchmark company has greater challenges in this area.
Home Depot 01/31/15 01/31/14 01/31/13 01/31/12 01/31/11 Quick Ratio 0.28 0.31 0.34 0.34 0.16 Current Ratio 1.36 1.42 1.34 1.55 1.33
Lowes 01/31/15 01/31/14 01/31/13 01/31/12 01/31/11 Quick Ratio 0.06 0.10 0.09 0.16 0.16 Current Ratio 1.08 1.16 1.27 1.28 1.40
Home Depot Current Ratio
Industry Median: 1.56 vs. HD: 1.06
Industry Standards comparison: http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1306 Asset Ratios Home Depot’s asset ratio trends are encouraging. Proper handling of assets is key to controlling inventory levels and expenses associated with capital or resource acquisition to create inventory. Home Depot has improved every ratio during the time period. Home Depot’s asset turnover ratio and inventory days held ratio is notable higher that Lowes. In the sector due to inventory build up, inventory turnover ratio sequentially …show more content…
Annual Data Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15
ROIC 20.95 16.57 13.80 9.46 11.22 13.26 15.56 18.48 22.68 26.57
Home Depot Inc Quarterly Data Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14 Jan15 Apr15
ROIC 17.26 20.86 30.66 23.46 17.79 23.12 35.91 26.45 23.35 28.40
EVA
12 months ended Feb-15 Feb-14 Feb-13 Jan-12 Jan-11
Net operating profit after taxes (NOPAT) 7,266 6,279 5,570 4,883 4,214
Cost of capital 12.48% 12.45% 12.77% 12.47% 12.45%
Invested capital 32,203 31,785 32,146 31,670 31,406 Economic profit 3,248 2,323 1,465 932 304