ACC 501 Case 3
Understanding Financial Reports 1
TUI UNIVERSITY
Module 2 Session Long Project
ACC501: Accounting for Decision Making
Introduction
Part I.
This particular project involves the analysis of cash flow from Lowes. Lowe’s Cos Inc (http://www.lowes.com/) is a $47.6B company. I shop there quite a bit. In researching this publicly held company, I utilized a few other websites to analyze the financial situation of Lowes and one of its competitors, Home Depot (http://www.homedepot.com/). For Lowes, the financial pages I used were under the “Investor Relations” (http://phx.corporate-ir.net/phoenix.zhtml?c=95223&p=irol-IRHome) dropdown menu under investor documents. For Home Depot, I utilized the corporate website,(https://corporate.homedepot.com/Pages/default.aspx) and used the “Investor relations” dropdown menu to obtain its financial reports, both the annual reports, and the financial tear sheet.
Part II.
Assess the financial position of your company and compare it to one of its competitors. The emphasis is on cash flow for this analysis.
1. Compute the return on assets, profit margin and asset utilization rate for your company and its competitor. The return on Assets is defined by Investopedia as “An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
The formula for return on assets is:
The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is
TUI UNIVERSITY
Module 2 Session Long Project
ACC501: Accounting for Decision Making
Introduction
Part I.
This particular project involves the analysis of cash flow from Lowes. Lowe’s Cos Inc (http://www.lowes.com/) is a $47.6B company. I shop there quite a bit. In researching this publicly held company, I utilized a few other websites to analyze the financial situation of Lowes and one of its competitors, Home Depot (http://www.homedepot.com/). For Lowes, the financial pages I used were under the “Investor Relations” (http://phx.corporate-ir.net/phoenix.zhtml?c=95223&p=irol-IRHome) dropdown menu under investor documents. For Home Depot, I utilized the corporate website,(https://corporate.homedepot.com/Pages/default.aspx) and used the “Investor relations” dropdown menu to obtain its financial reports, both the annual reports, and the financial tear sheet.
Part II.
Assess the financial position of your company and compare it to one of its competitors. The emphasis is on cash flow for this analysis.
1. Compute the return on assets, profit margin and asset utilization rate for your company and its competitor. The return on Assets is defined by Investopedia as “An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
The formula for return on assets is:
The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is