The Home Depot is the largest home improvement retailer in the Unites states with 2252 stores across the globe and the fourth largest retailer. Home Depot is a Fortune 500 company currently ranked number 35.The home depot was founded in 1978 by Bernie Marcus, Arthur Blank and Pat Farrah.Today, Home Depot‘s stores stock up to 35000 different kinds of building materials and lawn and garden products. The chief executive officer (CEO) and chairman of Home Depot is Frank Blake .Headquarter of Home Depot is located in Atlanta, Georgia, as of by January 2011, the company employed 321,000 employees .Based on information reported in Home Depot’s Annual balance sheet and Annual Income statement for fiscal year ending 2012, my financial analysis will explain where the company currently stands in comparison to a major competitor, Lowe’s.
I will provide a description of Home Depot’s financial standings over the last three years and give my thoughts for the company’s future growth as well.
Some important financial highlights given for Home Depot Inc. as of Jan 28, 2012 Total Revenue: 70,395,000,000
Net Income: 3,883,000,000
Current Assets: 14,520,000,000
Current Liabilities: 9,376,000,000
Long Term Debt: 10,758,000,000
For the fiscal year ended January 29, 2012, Home Depot reported Net Earnings of $3.9 billion and Diluted Earnings per Share of $2.47 compared to Net Earnings of $3.3 billion and Diluted Earnings per Share of $2.01 for the fiscal year ended January 30, 2011. Net Sales increased by 3.5% to $70.4 billion for fiscal 2011 from $68.0 billion for fiscal 2010. Home Depot’s comparable store sales increased by 3.4% in fiscal 2011, driven primarily by a 2.6% increase in their comparable store average ticket. Comparable store sales for their U.S. stores were increased by 3.0% in fiscal 2011. Their inventory turnover ratio was 4.3 times at the end of fiscal 2011 compared to 4.1 times at the end of fiscal 2010. On the logistics operations side, as of the end of fiscal 2011, they handled approximately 70% of their U.S. Cost of Sales through centralized distribution compared to approximately 25% four years ago. On growth side, Home Depot opened 11 new stores, including two relocations, and closed five stores in fiscal 2011, bringing their total store count at the end of fiscal 2011 to 2,252. As of the end of fiscal 2011, a total of 278 of these stores, or 12.3%, were located in Canada, Mexico and China compared to 272 stores, or 12.1%, at the end of fiscal 2010.
Let’s look at the ratio analysis which helps us to see the areas in which Home Depot is doing well or lagging behind when compared with its competitor
The current ratio of Home Depot is greater than 1 which shows the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). Also, during 2012, its management of working capital has significantly improved over the last 2 years where the current assets over current liabilities grew by almost 10%.
The quick ratio is more conservative than the current ratio, a more well-known liquidity measure, because it excludes inventory from current assets. Comparing current ratio verses quick ratio there is a significant difference which looks Home Depot is dependent on its inventory, however for retail business their main asset is inventory. A quick ratio of around 1 is good for any organization.
Total Debt Ratio:
Total Debt Ratio
The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less...
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