Home Depot

Topics: Finance, Income statement, Generally Accepted Accounting Principles Pages: 6 (1846 words) Published: November 2, 2010
Unit 6 Research Paper
Presented in Partial Fulfillment
Of the Requirements for the Class
GB 550-05NA: Financial Management
25 May 2010

Table of Contents
Abstract...........................................................................................................................................3 History of Home Depot…………………………………………………………………………....4 Business risks related to capital structure…………………………………………………………5 Financial risk related to capital structure………………………………………………………….5 Home Depots Financial Status………….…………………………………………………............6 Future and Flexibility of Home Depot….…………………………………………………………7 Conclusion………………………………………………………………………………………...8 References…………………………………………………………………………………………9 Abstract

When analyzing capital structure a company’s short and long term debt is considered. The main ratio used is debt to equity ratio which provides important information on how risky a company may be. This information presents the different ways in which the company is financed while also showing how capital structure choices affect a company’s return on investment and its risk profile. Home Depot (HD) is the largest home improvement store in the industry and so far has been able to stay afloat despite the recent downfall of the economy. One of the methods that will be used to analyze HD’s capital structure is ratio analysis.

Ratio analysis, which is a calculation that uses information from the company’s balance sheet and income statements, is compared to either previous years or to other companies in the industry. There are many ratios that can be calculated from the financial statements that interpret a company's performance, financing and liquidity. Therefore, the ratios are analyzed by management, investors and lenders throughout the year or at certain times during the company’s fiscal year. The ratios are presented in a financial report that is accompanied by the financial statements used in calculating the different ratios. The results then show whether the company is financed mainly through debt or through equity, or a balanced combination of both. A sound capital structure is one that shows a low level of debt accompanied by a high level of equity indicating a good sign of investment quality.

History of Home Depot
Not too long ago in June 2009, the Home Depot proudly celebrated its 30 year anniversary. For a company that we are all so familiar with, it comes at a surprise that the business is only 30 years young. After being fired in 1978 from executive positions, Bernie Marcus and Arthur Blank joined forces to design the concept of, “…a home improvement warehouse with the lowest prices, best selection, and best service” (Blank & Marcus, 1999). Tom Sternberg, founder and former CEO of Staples, reveres Bernie Marcus and Arthur Blank as, “…the two greatest entrepreneurs in American business history,” and felt that they had, “built the single best culture of any business…an extremely people-focused business in regard to both Home Depot’s customers and, even more important, its employees” (Goldstein, 2007).

Today, the business has expanded to all fifty states, Canada, Mexico, and China. Yet, headquarters still remains located in the North American southern city of Atlanta, Georgia. The founders have since retired and current CEO, Frank Blake, now runs the business. In 1999 the Home Depot had established 775 stores, acquired 160,000 associates, and made $30 billion in sales (Roush, 1999). In 2008, Home Depot sales totaled $ 71.88 billion and the number of stores representing Home Depot tallied up to 2,193 (homedepot.com, 2009).

Home Depot was started with the help of an investor who formally worked for the company that initially fired both Bernie Marcus and Arthur Blank. Bernie had always talked about his dream of a store with great service and low prices but didn’t have the money to make it happen. Only days after these two were fired from their jobs Bernie called...
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