word analysis for assignment #12

BTE 302 - Assignment 10

Jennifer Rolfes

Staying Power – Current ratio for the Home Depot is at 1.36 which is slightly down from the 2014 rate of 1.42 and slightly up from 2013 which was 1.34. Industry average is 1.21 so Home Depot runs above the industry standard which means there could be only slight concern about their liquidity as compared to others. Their debt to equity saw a spike from 2.24 in 2014 to 3.29 in 2015. 2013 was only 1.31 so it should be noted that this ratio is steadily increasing. Industry average is only 1.27. In reviewing the balance sheet, this increase is due to a significant increase in long term debt over the last three years and a decrease in stockholder’s equity, most of which is due to treasury stock.

Earning Power – Home Depot’s gross margin has remained steady at 34.8, 34.8, and 34.6 which is slightly lower then the industry average of 36.17. Home Depot’s operation profit margin and net margin have both seen a steady increase year over year and both are above industry average. Being above the industry average in this situation is good. 2015 operating profit margin was 12.6% compared to the industry average of 11.59% and the net margin was 7.6% compared to the industry average of 6.96% so Home Depot did an excellent job in these two categories.

Overall Efficiency Ratios – Based on Home Depot’s efficiency ratios, they appear to be a well managed company. Their Return on Assets has increased from 11% in 2013 to 15.9% in 2015. This is 2% higher than the industry average of 13.31. Their return on equity far beats the industry average at 68.1% in 2015 up from 25.5% in 2013. This is 20% higher than the industry average of 47.35%. It is because of this ratio that I believe Home Deposit stock is rated as a buy by most analysts. Their ROA means good news for stockholders.

Working Capital Cycle Ratios – Home Depot is at industry average standards on inventory turnover. They have remained steady at 5 days for three years as compared too the industry average of 4.31. While there is no average to compare their accounts payable turnover to, they seem to do an excellent job of paying back their debt with an average of 5.5 days that has remained steady over the last three years. They do run quite a bit above industry standard on collecting their receivables though. For year 2015 it took an average of 56 days for Home Depot to collect as compared to an industry average of 35.99. Home Depot seems to run consistent on this number as well.