Fin 516 Mini Case Week 2
Home Depot Fiscal year end of Jan. 29, 2012 1. What is the name of the company? Home Depot.
What is the industry sector? Home Improvement Retailer. 2. What are the operating risks of the company? * Uncertainty regarding current economic conditions. * Competition. * Timely identifying changes in demand. * Relationships with suppliers and disruptions in the supply chain. * Failure of key information technology or process; including customer facing and privacy disruptions and disruptions in the interconnected retail strategy. * Inflation or deflation and the rise of COGS. * Changes in the ability to obtain favorable financing. 3. What is the financial risk of the company (the debt to total capitalization ratio)?
Using the Fiscal YE filings 1/29/2012 balance sheet: $10,788 Million (debt…. Long Term Bank Loans, Bonds & Debentures, and their Short Term Portions) / $116,918 Million (equity + debt) = .09x (times) Which is very strong. There is financial risk in HD’s exposure to the market in terms of fluctuations in interest rates, and Interest swap arrangements to manage the fixed/floating debt portfolio. 4. Does the company have any preferred stock? No 5. What is the capital structure of the company?: Short term portion of Long Term Debt, Long Term Debt, ($10,788) Preferred Stock (if any) (none), and market value of Common Stock issued and outstanding? (# shares outstanding 1.537 billion x $69.05 current market value of this stock = $106.13 billion). 10,788 (debt) / 17,898 (equity listed on balance sheet) = 60% debt 40% equity in millions. 6. What is the company’s current actual Beta? The current beta of .99 for Home Depot. 7. What would the Beta of this company be if it had no Long Term Debt in its capital structure? (Apply the Hamada Formula.) bU = b / [1 + (1-T) x (wd/ws)]
Levered beta, b | | 0.99 | Current wd | | 60% | Current ws | | 40% | Tax rate | | 36% | | | | bU | |
What is the industry sector? Home Improvement Retailer. 2. What are the operating risks of the company? * Uncertainty regarding current economic conditions. * Competition. * Timely identifying changes in demand. * Relationships with suppliers and disruptions in the supply chain. * Failure of key information technology or process; including customer facing and privacy disruptions and disruptions in the interconnected retail strategy. * Inflation or deflation and the rise of COGS. * Changes in the ability to obtain favorable financing. 3. What is the financial risk of the company (the debt to total capitalization ratio)?
Using the Fiscal YE filings 1/29/2012 balance sheet: $10,788 Million (debt…. Long Term Bank Loans, Bonds & Debentures, and their Short Term Portions) / $116,918 Million (equity + debt) = .09x (times) Which is very strong. There is financial risk in HD’s exposure to the market in terms of fluctuations in interest rates, and Interest swap arrangements to manage the fixed/floating debt portfolio. 4. Does the company have any preferred stock? No 5. What is the capital structure of the company?: Short term portion of Long Term Debt, Long Term Debt, ($10,788) Preferred Stock (if any) (none), and market value of Common Stock issued and outstanding? (# shares outstanding 1.537 billion x $69.05 current market value of this stock = $106.13 billion). 10,788 (debt) / 17,898 (equity listed on balance sheet) = 60% debt 40% equity in millions. 6. What is the company’s current actual Beta? The current beta of .99 for Home Depot. 7. What would the Beta of this company be if it had no Long Term Debt in its capital structure? (Apply the Hamada Formula.) bU = b / [1 + (1-T) x (wd/ws)]
Levered beta, b | | 0.99 | Current wd | | 60% | Current ws | | 40% | Tax rate | | 36% | | | | bU | |
Bibliography: of the sources you used to prepare this paper. The 2011 Home Depot Annual Report Retrieved from: http://phx.corporate-ir.net/phoenix.zhtml?c=63646&p=irol-reportsannual Home Depot’s current Beta score retrieved from: http://finance.yahoo.com/q/ks?s=HD Home Depots current stock priced retrieved from: http://www.nasdaq.com/symbol/hd.