Home Depot and Lowe’s Financial Comparison
Module 3 SLP
ACC 501: Introduction to Financial Accounting
Dr. Debra Moore
May 20, 2012
In this paper a review of the financial statements for the last two years for Home Depot and Lowe’s will be discussed. A comparison of the revenues, cost of goods sold, accounts receivable, accounts payable, and inventory will be laid out for the last two years. A trend for all five categories will also be revealed while discussing the changes over the period of time. The best performer will be discussed along with the reasons why they should be labeled as the best performer. The usefulness of this information from a managerial perspective will be shown. FINANCIALS COMPARISON AND TRENDS
Cost of Goods Sold
The latest available financial information for Home Depot demonstrates they have been increasingly successful in operating revenue. They have grown from $66.2B in 2009 to $70.4B in 2011. Revenue has increased 2.8% from 2009 to 2010 and then 3.5% from 2010 to 2011. HD has been able to lower the sales percentage dedicated to selling, general and administrative costs from 23.31% to 22.7% which was a key component in increasing their net income from $3.3B in 2010 to $3.8B in 2011 (Investor Relations, 2003-2011). Lowe’s has also seen increases in revenue, 3.4% from 2009 to 2010 and 2.9% increase from 2010 to 2011. Despite the increase in revenue, the percentage of sales used to cover the cost of goods sold has increased from 64.86% to 65.44% lowering their bottom line. When it comes to accounts receivable, Home Depot’s receivables have increased each year as reflected on the chart above, however when reviewing accounts receivables this is not a good thing. Accounts receivables (AR) reflects when sales are made, but payment has not been collected. When payment is collected then the accounts receivables balance decreases (Home Depot Accounts Receivable, 2009-2012). Unfortunately, Lowe’s does not show any accounts receivables on their balance sheet so a comparison cannot be made (Investor Relations, 2012). Accounts payable (AP) is inventory the company purchases on credit from a vendor and when it is repaid then accounts payable decreases. An increase in accounts payable decreases net income and is not what you want to see on a statement. Both Lowe’s and Home Depot have had increases. Home Depot did decrease AP in 2010, but it went up again in 2011. Even though they have both increased, Lowe’s seems to be in a better situation in regards to AP since they have had a minimal increase in compared to HD’s larger fluctuations. Lowe’s seems as though they are not doing as well when reviewing their inventory totals. They are slightly increasing all three years reviewed which reflects less sales while the numbers for Home Depot went down in 2010 from 2009 with a decline from 2010 to 2011, but not quite getting down to the level they had in 2009. Below are charts for each category discussed above giving a visual aide of the trends for the past three years.
Reviewing the information above, Home Depot has rebounded in the past two years from the recession. The company has posted profit increases for all three years reviewed while Lowe’s has seen a slump with a decrease in revenue sales from 3.4% in 2010 to 2.9% in 2011 (How Home Depot is hammering Lowe's, 2011). According to the Morningstar website, Home Depot is performing above the industry average and better than Lowe’s when it comes to total returns (Home Depot, Inc., 2012). It seems...
References: Financial Statement Links. (2007-2012). Retrieved May 13, 2012, from balancesheetwalk.com:
Home Depot Accounts Receivable. (2009-2012). Retrieved May 11, 2012, from YCharts:
Home Depot, Inc. (2012). Retrieved May 13, 2012, from Morningstar:
Investor Relations. (2003-2011). Retrieved May 10, 2012, from Home Depot:
Statements? Retrieved May 13, 2012, from eHow Money:
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