Home Depot

Topics: Cash flow, Economics, Generally Accepted Accounting Principles Pages: 4 (1046 words) Published: April 3, 2011
1. Evaluate Home Depot’s business strategy. Do you think it is a viable strategy in the long run?

There are three aspects of strategy can be analyzed, mainly industry analysis, competitive analysis and corporate analysis. Since Home Depot carries only one business, corporate strategy analysis is not relevant for this question.

2.1 Industry Analysis
The Home Depot is the leader in the industry, but the market share is almost negligible (0.9%). However, it obtained 62% growth in 1985 which is far above the average in the industry. Judging from Porter’s five forces, the Home Depot is facing challenges brought by the existing firms. No much challenges raise from the new entrants. But the threats from the suppliers and the bargaining power of buyers should not be under estimated. 2.2 Competitive Analysis

Home Depot followed a combination of Cost Leadership and Differentiation. It offered low and competitive prices and differentiated its services including better trained employees, minimizing the chance of out-of-stock etc. Despite the success, there are also few risk factors that attention should be paid, like dropping of net earnings and stock prices which makes the financing difficult 2.3 Evaluation

Despite the advantages the Home Depot possesses, the company’s net earnings are dropping for the last three years and not able to generate positive cash flow.

In my opinion, the Home Depot’s business strategy works fine in the short run. It may fail in the long run as it is not able to generate positive cash flow. As the industry grows, more expansion is required and the company may face financing problems in the future if the inability of generating positive cash flow continues. And since it is possible for its rivals to imitate its core competencies, more competitions are expected in the long run. 2. Analyze Home Depot’s financial performance during the fiscal year 1983-1985. Compare Home Depot’s performance in this period with...
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