NAME: SHAHBAZ SOOMRO

ERP ID: 23202

• ASSIGNMENT TWO
• VALUE LINE PUBLISHING, OCT 2002
FINANCIAL RATIOS
Home Depot 1997 1998 1999 2000 2001

Working Capital (CA - NIBCL) 2012 2090 2763 3396 3865

Lowe's 1997 1998 1999 2000 2001

Working Capital (CA - NIBCL) 673 920 1,367 1,288 1,962

Home Depot 1997 1998 1999 2000 2001

Fixed Assets 6769 8532 10691 13608 16033

Lowe's 1997 1998 1999 2000 2001

Fixed Assets 3109 3759 5319 7201 8816

 Home Depot 1997 1998 1999 2000 2001

Total Capital 8781 10622 13454 17004 19898

Lowe's 1997 1998 1999 2000 2001

Total Capital 3783 4678 6686 8489 10778

Home Depot 1997 1998 1999 2000 2001

Tax Rate 38.9% 39.2% 39.0% 38.8% 38.6%

Lowe's 1997 1998 1999 2000 2001

Tax Rate 36.0% 36.4% 36.7% 36.8% 37.0%

Home Depot 1997 1998 1999 2000 2001

NOPAT (EBIT (1-t) 1158 1623 2323 2565 3028

Lowe's 1997 1998 1999 2000 2001

NOPAT (EBIT (1-t) 400 530 742 885 1,133

 PROFITABILITY RATIO

Home Depot 1997 1998 1999 2000 2001

Return on capital (NOPAT/total capital) 13.2% 15.3% 17.3% 15.1% 15.2%

Lowe's 1997 1998 1999 2000 2001

Return on capital (NOPAT/total capital) 10.57% 11.32% 11.10% 10.43% 10.51%

Home Depot 1997 1998 1999 2000 2001

Return on equity (net earnings/s. equity) 16.3% 18.5% 18.8% 17.20% 16.80%

Lowe's 1997 1998 1999 2000 2001

Return on equity (net earnings/s. equity) 15.36% 16.89% 15.80% 16.11% 16.98%
 MARGIN
Home Depot 1997 1998 1999 2000 2001
Gross Margin (Gross Profit / Sales) 29.2% 29.7% 30.9% 31.20% 31.6%
Lowe's 1997 1998 1999 2000 2001
Gross Margin (Gross Profit / Sales) 26.5% 26.9% 27.5% 28.2% 28.8%
Home Depot 1997 1998 1999 2000 2001
Cash operating expenses/sales 20.2% 19.6% 19.8% 20.70% 20.9%
Lowe's 1997 1998 1999 2000 2001
Cash operating expenses/sales 18% 18% 18% 19% 18%
Home Depot 1997 1998 1999 2000 2001
Depreciation/sales 1.2% 1.2% 1.2% 1.30% 1.4%
Lowe's 1997 1998 1999 2000 2001
Depreciation/sales 2% 2% 2% 2% 2%
Home Depot 1997 1998 1999 2000 2001
Depreciation/P&E 4.3% 4.6% 4.5% 4.6% 5.0%
Lowe's 1997 1998 1999 2000 2001
Depreciation/P&E 8.0% 7.0% 7.0% 6.0% 6.0%
Home Depot 1997 1998 1999 2000 2001
Operating margin (EBIT/sales) 7.8% 8.8% 9.9% 9.20% 9.2%
Lowe's 1997 1998 1999 2000 2001
Operating margin (EBIT/sales) 6.0% 7.0% 7.0% 7.0% 8%
Home Depot 1997 1998 1999 2000 2001
NOPAT margin (NOPAT/sales) 4.8% 5.4% 6.0% 5.60% 5.7%
Lowe's 1997 1998 1999 2000 2001
NOPAT margin (NOPAT/sales) 4.0% 4.0% 4.0% 4.0% 5%
 TURNOVER RATIO
Home Depot 1997 1998 1999 2000 2001

Total capital turnover (sales/total capital) 2.8 2.8 2.9 2.7 2.7

Lowe's 1997 1998 1999 2000 2001

Total capital turnover (sales/total capital) 2.7 2.6 2.4 2.2 2.1

Home Depot 1997 1998 1999 2000 2001

P&E turnover (sales/P&E) 3.7 3.7 3.8 3.5 3.5

Lowe's 1997 1998 1999 2000 2001

P&E turnover (sales/P&E) 3.4 3.4 3.1 2.7 2.6

Home Depot 1997 1998 1999 2000 2001

Working-capital turnover (sales/WC) 12.0 14.5 13.9 13.5 13.5

Lowe's 1997 1998 1999 2000 2001

Working-capital turnover (sales/WC) 15.1 13.3 11.6 14.6 11.3

 Home Depot 1997 1998 1999 2000 2001
Receivable turnover (sales/AR) 43.4 64.4 65.5 54.8 54.8
Lowe's 1997 1998 1999 2000 2001
Receivable turnover (sales/AR) 85.9 85.0 107.5 116.6 133.2
Home Depot 1997 1998 1999 2000 2001
Inventory turnover (COGS/m. inventory) 4.7 4.9 4.8 4.8 4.8
Lowe's 1997 1998 1999 2000 2001
Inventory turnover (COGS/m. inventory) 4.3 4.3 4.1 4.1 4.4

Home Depot 1997 1998 1999 2000 2001

Sales per store ($ millions) 38.7 39.7 41.3 40.3 40.3
Lowe's 1997 1998 1999 2000 2001
Sales per store ($ millions) 21.3 23.5 27.6 28.9 29.7
Home Depot 1997 1998 1999 2000 2001
Sales per sq. foot ($) 366.0 373.1 384.3 371.9 371.9
Lowe's 1997 1998 1999 2000 2001
Sales per sq. foot ($) 253.4 255.1 279.1 276.2 273
Home Depot 1997 1998 1999 2000 2001
Sales per transaction ($) 43.9 45.4 48.2 48.8 48.8
Lowe's 1997 1998 1999 2000 2001
Sales per transaction ($) 43.9 45.7 53.2 54.9 56.0
 GROWTH
Home Depot 1997 1998 1999 2000 2001

Total sales growth 25.1% 27.2% 19.0% 17.1%

Lowe's 1997 1998 1999 2000 2001

Total sales growth 20.8% 29.9% 18.1% 17.7%

Home Depot 1997 1998 1999 2000 2001

Sales growth for existing stores 2.6% 4.1% –2.4% -4.0%
Lowe's 1997 1998 1999 2000 2001
Sales growth for existing stores 10.8% 17.3% 4.6% 2.9%
Home Depot 1997 1998 1999 2000 2001
Growth in new stores 22.0% 22.2% 21.9% 17.5%
Lowe's 1997 1998 1999 2000 2001
Growth in new stores 9.0% 10.8% 12.8% 14.5%
Home Depot 1997 1998 1999 2000 2001
Growth in sq. footage per store 0.6% 1.0% 0.9% 1.0%
Lowe's 1997 1998 1999 2000 2001
Growth in sq. footage per store 10.1% 7.2% 5.7% 4.1%
 LEVERAGE RATIO

Home Depot 1997 1998 1999 2000 2001

Total capital/equity
1.24 1.22 1.09 1.13 1.13

Lowe's 1997 1998 1999 2000 2001

Total capital/equity
1.45 1.49 1.42 1.54 1.61
Which company is in a stronger position bases on ratio analysis?
• Home Depot profitability margins (Gross Profit, Operating Profit and Net profit
are higher than Lowes profitability, on average Home Depot has 30.5% of G.P
margin as compared to average to Lowes G.P margin of 27.6%
• Home Depot returns (ROCE, ROE are 15.2% and 17.5%) and Lowes returns
(ROCE, ROE are 10.79% and 16.23% which means Home Depot returns are
higher than Lowe Returns
• Home Depot Fixed assets (6769) and Total Capital (8781)are twice than Lowes
Fixed assets (3109) and Total Capital (3783) which means that Home Depot has
higher asset and capital base than Lowe
• Home Depot Financial base and profitability is better than Lowe, despite high
stakes of Home Depot their returns are higher than Lowe returns which depicts a
strong and vibrant position of Home Depot on basis of ratios
 PART 4
Analysis of Financial Forecast of Home Depot

• The financial forecast of Home Depot shows positive growth in Gross Profit
Margin and net sales which indicates that Home Depot will have more revenues in
future and it will also attract potential investors for share procurement of Home
Depot
• Home Depot will have higher G.P margin than its existing G.P margin which is
good prospect in terms of low direct cost and high revenues
• Home Depot cash operating expenses to sales on average will stand at 20.7%,
which is lower than 20.9% of 2001
• Depreciation to sales will remain constant at 1.4%
• Both of these shows ratios show healthy performance of Home Depot in
operational aspect, despite increase in sales and Gross profit margin which are
directly related to operational cost, both expense ratio have not increased which is
very healthy and indicates efficiency in operational division
• Receivable, inventory and P&E turnover are all decreasing which is positive from
working capital cycle as the company will have more cash inflows in future,
which would also ensure stable current and quick ratios as well
• Payable turnover will stand at 9.4% through out which means Home Depot will
maintain the same payable time as before
• It can be seen that property and equipment and total capital will consistently
increase, which shows that Home Depots stakes will increase, which may be due
to its good returns and healthy performance they are able to attract investors for
investment in their operations
• Return on capital will end up at 16% from 15.2% which is very good for existing
shareholders as they will be getting higher returns, it will also boost their
confidence for future investment in Home Depot
• On a Concluding point it can be said that Home Depot financial performance will
turn from good to very good position, Their assets and other stakes would achieve
good growth in future which could play strong role in enjoying market leader
position for Home Depot