Ratio Analysis and Statement of Cash Flows Essay
Home Depot's Return on Equity 2005 =
Home Depot's Return on Equity 2006 =
Lowe's Return on Equity 2005 =
Lowe' s Return on Equity 2006 =
Asset Utilization Efficiency ratios determine how efficiently companies are using assets. A high efficiency score shows a company is working close to capacity and is useful for comparing to companies in the same industry (Brealey & Myer& Marcus, 2003).
Efficiency Ratios The asset turnover ratio shows how well companies are using assets. The ratio is calculated by dividing sales by average total assets. This ratio shows that both companies were using their assets more efficiently in 2005 than in 2006. Home Depot's turnover ratio is higher than Lowe's in 2006 so Home Depot uses assets better.
Home Depot's Turnover Ratio 2005 =
Home Depot's Turnover Ratio 2006 =
Lowe's Turnover Ratio 2005 =
Lowe's Turnover Ratio 2006 =
The inventory turnover ratio helps managers to monitor "the rate at which the company is turning over its inventories" (Brealey & Myer & Marcus, 2003, p. 457). Inventory turnover = cost of goods sold / average inventory.
Home Depot's 2005 = 54191 / ((9076 + 10076) /2) = 3.84