Value Line Publishing

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Value Line Publishing, October 2002
In Case Number 12, "Value Line Publishing, October 2002," Carrie Galeotafiore presents a five-year financial forecast that shows Home Depot in an positive light. It also prepares to do the same with an analysis of Lowe's. She supports the changes proposed by the new Home Depot CEO and that would play a role in improving Home Depot's financial health in the home center and building industry. Galeotafiore supports her by mentioning a number of sources that would help the growth of the two companies. She mentions the recent consolidation throughout the building industry with both Lowe's and Home Depot acquiring several smaller companies.

Lowe's and Home Depot have done well by going beyond the traditional home center and offering alternatives such as sales online and one stop design shopping. Both Home Depot and Lowe's have entered the same metropolitan markets and have created competition that some worry may cause price wars. Home Depot has expanded to international markets, but Lowe's has not.

Home Depot's CEO has planned to turn Home Depot around and make it competitive. In the process he will increase stock prices. His goal is to make store operations efficient and cut costs. Additionally, he will have systems to increase movement of stock so less kept sitting around. He will put focus on improving customer service, which has been weak, to hopefully increase sales.

An analysis of the financial ratios for Home Depot and Lowe's shows information that both supports and disproves Galeotafiore's forecasts. First is the Working Capital Ratio. After examination of both financial statements, it displays that both have a healthy amount of working capital and both with working capital growing yearly. Working capital for both have doubled in over five years and indicates growth in the industry.

The Net Working Capital to Total Assets Ratio shows almost a 20% working capital ratio of...
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