SWOT Analysis - Home Depot
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The Home Depot, Inc.
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TABLE OF CONTENTS
1 The Home Depot, Inc. ............................................................................................................................. 6
2 The Home Depot, Inc. - Key Employees ................................................................................................. 7
3 The Home Depot, Inc. - Key Employees Biographies ............................................................................ 9
4 The Home Depot, Inc. - Major Products and Services ......................................................................... 10
5 The Home Depot, Inc. - History ............................................................................................................ 11
6 The Home Depot, Inc. - Company Statement ....................................................................................... 14
7 The Home Depot, Inc. - Locations and Subsidiaries............................................................................ 19
7.1 The Home Depot, Inc. - Head Office ................................................................................................................... 19
7.2 The Home Depot, Inc. - Other Locations and Subsidiaries ................................................................................... 19
8 The Home Depot, Inc. - Business Analysis .......................................................................................... 20
8.1 The Home Depot, Inc. - Company Overview ....................................................................................................... 20
8.2 The Home Depot, Inc. - Business Description ..................................................................................................... 20
9 The Home Depot, Inc. - SWOT Analysis ............................................................................................... 22
9.1 The Home Depot, Inc. - SWOT Analysis - Overview ............................................................................................ 22
9.2 The Home Depot, Inc. - Strengths ....................................................................................................................... 22
9.2.1 Strength - Sustained Financial Growth......................................................................................................... 22
9.2.2 Strength - Multi-Channel Selling .................................................................................................................. 22
9.2.3 Strength - Diversified Product and Service Portfolio ..................................................................................... 22
9.3 The Home Depot, Inc. - Weaknesses .................................................................................................................. 23
9.3.1 Weakness - Huge Debt ............................................................................................................................... 23
9.3.2 Weakness - Lower Inventory Turnover Ratio ............................................................................................... 23
9.3.3 Weakness - Data Breach............................................................................................................................. 23
9.4 The Home Depot, Inc. - Opportunities ................................................................................................................. 23
9.4.1 Opportunity - Expanding Retail Market in the US ......................................................................................... 23
9.4.2 Opportunity - Focus on Multi-family, Hospitality and Institutional Markets ..................................................... 23
9.4.3 Opportunity - Focus on Customer-Centric Business Model .......................................................................... 24
9.5 The Home Depot, Inc. - Threats .......................................................................................................................... 24
9.5.1 Threat - Stringent Regulations ..................................................................................................................... 24
9.5.2 Threat - Expansion by Competitors.............................................................................................................. 24
9.5.3 Threat - Foreign Exchange Risks ................................................................................................................ 24
10 The Home Depot, Inc. - Company Financial Analysis .......................................................................... 25
10.1 The Home Depot, Inc. - Five Year Snapshot: Overview of Financial and Operational Performance Indicators ...... 25
11 The Home Depot, Inc. - Interim ratios .................................................................................................. 27
11.1.1 The Home Depot, Inc. - Financial ratios: Capital Market Ratios .................................................................... 27
11.2 The Home Depot, Inc. - Financial Performance and Ratio Charts ........................................................................ 28
11.2.1 The Home Depot, Inc. - Revenue and Operating margin .............................................................................. 28
11.2.2 The Home Depot, Inc. - Asset and Liabilities ............................................................................................... 29
11.2.3 The Home Depot, Inc. - Net Debt vs. Gearing Ratio ..................................................................................... 30
11.2.4 The Home Depot, Inc. - Operational Efficiency ............................................................................................ 31
11.2.5 The Home Depot, Inc. - Solvency ................................................................................................................ 32
11.2.6 The Home Depot, Inc. - Valuation ................................................................................................................ 33
11.3 The Home Depot, Inc. - Competitive Benchmarking ............................................................................................ 34
11.3.1 The Home Depot, Inc. - Market Capitalization .............................................................................................. 35
11.3.2 The Home Depot, Inc. - Efficiency ............................................................................................................... 36
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11.3.3 The Home Depot, Inc. - Valuation ................................................................................................................ 37
11.3.4 The Home Depot, Inc. - Turnover: Inventory and Asset ................................................................................ 38
11.3.5 The Home Depot, Inc. - Liquidity ................................................................................................................. 39
12 The Home Depot, Inc. - Mergers & Acquisitions and Partnerships ..................................................... 40
12.1 The Home Depot, Inc. - M&A and Partnerships Strategy ..................................................................................... 40
13 The Home Depot, Inc. - Recent Developments .................................................................................... 45
14 Appendix .............................................................................................................................................. 48
14.1 Methodology ....................................................................................................................................................... 48
14.2 The Home Depot, Inc. - Ratio Definitions ............................................................................................................ 48
14.3 Disclaimer........................................................................................................................................................... 53
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List of Tables
Table 1: The Home Depot, Inc. - Key Employees ................................................................................................................ 7
Table 2: The Home Depot, Inc. - Key Employees Biographies ............................................................................................. 9
Table 3: The Home Depot, Inc. - Major Products and Services .......................................................................................... 10
Table 4: The Home Depot, Inc. - History ............................................................................................................................ 11
Table 5: The Home Depot, Inc. - Subsidiaries .................................................................................................................... 19
Table 6: The Home Depot, Inc. - Annual ratios .................................................................................................................. 25
Table 7: The Home Depot, Inc. - Interim ratios .................................................................................................................. 27
Table 8: The Home Depot, Inc. - Capital Market Ratios ..................................................................................................... 27
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List of Figures
Figure 1: The Home Depot, Inc. - Revenue and Operating Profit ....................................................................................... 28
Figure 2: The Home Depot, Inc. - Asset and Liabilities ....................................................................................................... 29
Figure 3: The Home Depot, Inc. - Net Debt vs. Gearing Ratio ............................................................................................ 30
Figure 4: The Home Depot, Inc. - Operational Efficiency.................................................................................................... 31
Figure 5: The Home Depot, Inc. - Solvency ....................................................................................................................... 32
Figure 6: The Home Depot, Inc. - Valuation ....................................................................................................................... 33
Figure 7: The Home Depot, Inc. - Market Capitalization ..................................................................................................... 35
Figure 8: The Home Depot, Inc. - Efficiency....................................................................................................................... 36
Figure 9: The Home Depot, Inc. - Valuation ....................................................................................................................... 37
Figure 10: The Home Depot, Inc. - Turnover: Inventory and Asset ..................................................................................... 38
Figure 11: The Home Depot, Inc. - Liquidity ....................................................................................................................... 39
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1 The Home Depot, Inc.
Fast Facts
Headquarters Address 2455 Paces Ferry
Road,Atalnta,Georgia,30339-1834,United States of America
Telephone +1 770 4338211
Fax N/A
Website www.homedepot.com
Ticker Symbol , Exchange Name HD,New York Stock Exchange
Number of Employees 371,000
Fiscal Year End January
Revenue (US$ million) 88,519
SWOT Analysis
Strengths Weaknesses
Diversified Product and Service Portfolio
Data Breach
Multi-Channel Selling Huge Debt
Sustained Financial Growth Lower Inventory Turnover Ratio
Opportunities Threats
Expanding Retail Market in the US Expansion by Competitors
Focus on Customer-Centric Business Model
Foreign Exchange Risks
Focus on Multi-family, Hospitality and Institutional Markets
Stringent Regulations
Share Data
Share price (US$) as on 01 Jun 2016 131.83
EPS (US$) 5.46
Market Capitalization (US$ million) 163,997
Enterprise Value (US$ million) 181,688
Shares outstanding (million) 1,244
Financial Snapshot
Operating Performance
The company reported revenue of US$88,519 million during the fiscal year 2016 (2016). The company's revenue grew at a CAGR of 5.89% during 2012–2016, with an annual growth of 6.42% over 2015. In 2016, the company recorded an operating margin of 13.30%, as against 12.59% in 2015.
Revenue and Margins
Return on Equity
The company recorded a return on equity (ROE) of 110.97% for the fiscal year 2016, as compared to its peers, Target Corporation (Ticker: TGT), Best Buy Co, Inc. (Ticker: BBY) and Wal-Mart Stores, Inc. (Ticker: WMT), which recorded ROEs of 25.96%, 20.49% and 18.24% respectively. Furthermore, the company reported an operating margin of 13.30% in 2016.
Return on Equity
Liquidity Position
The company reported a current ratio of 1.32 in 2016, as compared to its peers, Target Corporation, Best Buy Co, Inc. and W al-Mart Stores, Inc., which recorded current ratios of 1.12, 1.43 and 0.93 respectively. As of January 2016, the company recorded cash and short- term investments of worth US$2,216 million, against US$77 million current debt. The company reported a debt to equity ratio of 3.36 in 2016 as compared to its peers, Target Corporation, Best Buy Co, Inc. and W al- Mart Stores, Inc.,...
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2 The Home Depot, Inc. - Key Employees
Table 1: The Home Depot, Inc. - Key Employees
Name Job Title Board Level Since Age
Craig A. Menear Chairman, Chief Executive Officer, President
Executive Board 2015 58
Aaron Flowe President - Western Division Senior Management
Ann-Marie Campbell Vice President - Executive - US Stores Senior Management
Bill Lennie President - Outside Sales and Service Senior Management
Carol B. Tome Chief Financial Officer, Executive Vice President - Corporate Services
Senior Management 2007 59
Crystal Hanlon President - Northern Division Senior Management
Dwaine Kimmet Senior Vice President - Payments and Treasurer
Senior Management
Edward P. Decker Executive Vice President - Merchandising Senior Management 2014 53
Giles Bowman Senior Vice President - - Merchandising and Building Materials
Senior Management
Gordon Erickson Senior Vice President - Merchandising Services
Senior Management
Hector Padilla Senior Vice President - Store Operations Senior Management 2014
Jeanine Huebner Senior Vice President - Merchandising, Hardlines
Senior Management
Jeff Kinnaird President - The Home Depot, Canada Senior Management
John Deaton Senior Vice President - Brand and Product Development
Senior Management
Kevin Hofmann President - Online, Senior Vice President - Online
Senior Management
Kevin Scott Senior Vice President - Merchandising Decor
Senior Management
Lyne Castonguay Senior Vice President - Home Services Senior Management
Marc D. Powers Executive Vice President - Operations Senior Management 2014 53
Mark Q. Holifield Executive Vice President - Supply Chain and Product Development
Senior Management 2014 58
Mark White Senior Vice President - Merchandising Services
Senior Management
Matthew A. Carey Chief Information Officer, Executive Vice President
Senior Management 2008 51
Paul Gaffney Senior Vice President - Information Technology
Senior Management 2014
Ricardo Saldivar President - The Home Depot, Mexico Senior Management
Richard McPhail Senior Vice President - Finance Senior Management
Stacey Tank Vice President - Corporate Communications and External Affairs
Senior Management
Teresa W ynn Roseborough Executive Vice President, General Counsel, Secretary
Senior Management 2011 56
Tim Hourigan President - Southern Division Senior Management
Timothy M. Crow Executive Vice President - Human Resources
Senior Management 2007 60
Tom Shortt Senior Vice President - Supply Chain Senior Management
Trish Mueller Chief Marketing Officer, Senior Vice Senior Management 2011
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Table 1: The Home Depot, Inc. - Key Employees
Name Job Title Board Level Since Age
President
Albert P. Carey Director Non Executive Board 2008 64
Ari Bousbib Director Non Executive Board 2007 55
Armando Codina Director Non Executive Board 2007 69
Gerard J. Arpey Director Non Executive Board 2015 57
Gregory D. Brenneman Director Non Executive Board 2000 54
Helena B. Foulkes Director Non Executive Board 2013 51
J. Frank Brown Director Non Executive Board 2011 59
Karen L. Katen Director Non Executive Board 2007 66
Linda R. Gooden Director Non Executive Board 2015 62
Mark Vadon Director Non Executive Board 2012 46
Wayne M. Hewett Director Non Executive Board 2014 51
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3 The Home Depot, Inc. - Key Employees Biographies
Table 2: The Home Depot, Inc. - Key Employees Biographies
Employee Details Biography
Carol B. Tome
Job Title : Chief Financial Officer, Executive Vice President - Corporate Services
Since : 2007
Age :59
Carol B. Tome has been the Chief Financial Officer and an Executive Vice President for Corporate Services of the company since 2007. She served as the Senior Vice President of Finance and Accounting, and Treasurer from 2000 to 2001 and as Vice President and the Treasurer from 1995 to 2000. During 1992-1995, she served as a Vice President and the Treasurer of Riverwood International Corporation.
Craig A. Menear
Job Title : Chairman, Chief Executive Officer, President
Since : 2015
Age :58
Craig A. Menear has been the Chairman, President and the Chief Executive Officer of the company since February 2015. Previously, he served as the President, US Retail from February 2014 to October 2014. Prior to this, he served as the Executive Vice President of merchandising from 2007 to 2014 and Senior Vice President of Merchandising from 2003 to 2007. He also held various senior level positions in the organization including the Merchandising Vice President of Hardware, Merchandising Vice President of the Southwest Division, and Divisional Merchandise Manager of the Southwest Division.
Matthew A. Carey
Job Title : Chief Information Officer, Executive Vice President
Since : 2008
Age :51
Matthew A. Carey has been an Executive Vice President and the Chief Information Officer of the company since 2008. Previously, he served as the Senior Vice President and Chief Technology Officer at eBay from 2006 to 2008. During 1985-2005, he delivered his services to Wal-Mart Stores, Inc., where he held various senior level positions including the Chief Technology Officer and Senior Vice President. He also served as a Director of Geeknet.com.
Trish Mueller
Job Title : Chief Marketing Officer, Senior Vice President
Since : 2011
Trish Mueller has been Chief Marketing Officer of the company since 2011. Prior to this, she was the Vice President of advertising division of the company. She also served as the Senior Vice President, advertising and marketing for The Sports Authority. She held several senior officer marketing management roles at American Signature.
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4 The Home Depot, Inc. - Major Products and Services
The Home Depot, Inc. is a home improvement specialty retailer based in the US. The major products and services offered by the company include the following:
Table 3: The Home Depot, Inc. - Major Products and Services
Products:
Appliance
Bath and Faucets
Building Materials
Decor
Doors and Windows
Electrical
Flooring and Area Rugs
Heating and Cooling
Kitchen
Lawn and Garden Equipment
Lighting and Fans
Lumber and Composites
Outdoor Living
Paints
Plumbing
Storage and Organization
Tools and Hardware
DIY Products
Services:
Installation Services
E-Retail
Home Delivery
Gift Cards
Truck Rental
Brands:
HDX
Husky
Hampton Bay
Home Decorators Collection
Glacier Bay
Vigoro
Exclusive Brands
Defiant
Everbilt
RIDGID
Ryobi
CE Tech
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5 The Home Depot, Inc. - History
Table 4: The Home Depot, Inc. - History
Year Event type Description
2016
Others
The company agreed to pay at least US$19.5 million to compensate US consumers harmed by a 2014 data breach affecting more than US$50 million cardholders.
2016
Corporate Awards
The company secured '2016 ENERGY STAR Sustained Excellence Award' for its continued leadership in offering the latest innovations in energy efficient products was awarded by the US Environmental Protection Agency.
2015
Acquisitions/Mergers/Takeovers
Home Depot acquired Interline Brands, Inc. (Interline), a marketer and distributor of broad-line maintenance, repair and operations (MRO) products.
2015
Corporate Awards
The company was named as „2015 ENERGY STAR Partner of the Year – Sustained Excellence„ by The US Environmental Protection Agency for protecting the environment with energy-efficient products.
2015
Corporate Changes/Expansions
The company opened its new direct fulfillment center in Troy Township, Ohio, the US.
2014
Acquisitions/Mergers/Takeovers
The company acquired Blinds.com, the market leader in online sales of window coverings.
2014
New Products/Services
The company launched the Next Generation of Outdoor Power.
2014
Corporate Changes/Expansions
The company opened a new distribution center in Locust Grove, Georgia, Atlanta, the US.
2014
Corporate Awards
The company received a SmartWay Excellence Award from the US Environmental Protection Agency.
2014
Corporate Awards
The company was honored with „2014 WaterSense Partner of the Year Award', by the US Environmental Protection Agency.
2014
Contracts/Agreements
The company entered into a definitive agreement to purchase Hardware Solutions Business Unit of HD Supply.
2014
Corporate Changes/Expansions
The company opened six new stores in Mexico and one new store in Canada.
2013
Corporate Awards
The company received US EPA 2013 SmartWay excellence award.
2012
Acquisitions/Mergers/Takeovers
The company acquired U.S. Home Systems, Inc., an exclusive provider of kitchen and bath refacing products and services.
2012
Corporate Changes/Expansions
The company announced to close its remaining seven big box stores in China to focus on specialty stores and online offerings in China.
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Table 4: The Home Depot, Inc. - History
Year Event type Description
2012
Acquisitions/Mergers/Takeovers
The company acquired Redbeacon, an online home services platform connecting consumers with contractors for their home maintenance, repair and remodeling needs.
2012
Acquisitions/Mergers/Takeovers
The company acquired BlackLocus, a data analytics and pricing company.
2009
New Products/Services
The company along with Martha Stewart Living Omnimedia, Inc. (MSLO) entered into an agreement to develop an exclusive Martha Stewart Living brand of interior and exterior paints.
2009
Business / Operations Closure
The company closed its EXPO Business.
2009
Acquisitions/Mergers/Takeovers
The company's subsidiary, Home Depot USA, Inc was acquired by US Industrial REIT III
2009
Corporate Awards
The company has obtained Environmental Excellence Award from the US Environmental Protection Agency SmartWay Transport Partnership for conserving energy and lowering green house gas emissions.
2009
Contracts/Agreements
The company signed an agreement with Martha Stewart Living Omnimedia, Inc to develop an exclusive Martha Stewart Living brand of home improvement products that will provide consumers with distinctive merchandise in select categories including Outdoor Living, Home Organization and Home Decor
2008
New Products/Services
The company launched a national in-store, consumer compact fluorescent light (CFL) bulb recycling program.
2007
Contracts/Agreements
The company and National Football League entered into a multiyear marketing partnership which designates The Home Depot as the official home improvement sponsor of the National Football League.
2007
Contracts/Agreements
The company entered into an agreement to Sell HD Supply to Private Equity Group.
2006
Acquisitions/Mergers/Takeovers
The company completed the acquisition of Hughes Supply.
2006
Contracts/Agreements
The company signed a definitive agreement to acquire Home Decorators Collection.
2006
Contracts/Agreements
The company signed a definitive agreement to acquire The Home Way, China's first home improvement retailer.
2005
Contracts/Agreements
The company and Mark Burnett Productions entered into an alliance to develop programs which highlighted Home Depot's products and services in Burnett-produced television programming.
2004
Contracts/Agreements
The company signed a definitive agreement to acquire Home Mart.
2004
Acquisitions/Mergers/Takeovers
The company acquired Creative Touch Interiors (CTI).
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Table 4: The Home Depot, Inc. - History
Year Event type Description
2004
Contracts/Agreements
The company entered into an agreement to acquire White Cap Construction Supply.
2003
Contracts/Agreements
The company entered into an agreement to acquire Tampa-based Installed Products USA and Installed Products of California.
2003
Contracts/Agreements
The company signed a definitive agreement to acquire Atlanta-based RMA Home Services.
2002
Business / Operations Closure
The company sold its four stores in Argentina.
2002
Contracts/Agreements
The company entered into an agreement to purchase Del Norte, a four-store chain of home improvement stores in Juarez, Mexico.
2001
Acquisitions/Mergers/Takeovers
The company acquired the 'Your "other" Warehouse' company.
2001
Business / Operations Closure
The company sold five stores in Chile to Falabella.
2001
Acquisitions/Mergers/Takeovers
The company acquired Total Home, a large Mexican home improvement retailer.
2000
Corporate Changes/Expansions
The company established the first Home Depot stores in Argentina and Canada, and also opened a test store in Plano, Texas.
2000
Acquisitions/Mergers/Takeovers
The company acquired Apex Supply.
1999
Acquisitions/Mergers/Takeovers
The company acquired its wholly owned subsidiary, Georgia Lighting.
1998
Corporate Changes/Expansions
The company entered the Puerto Rican market.
1997
Acquisitions/Mergers/Takeovers
The company acquired National Blinds & Wallpaper.
1994
Acquisitions/Mergers/Takeovers
The company acquired Aikenhead to enter the Canadian market.
1991
Incorporation/Establishment
The company launched its first Expo Design Center in San Diego.
1986
Incorporation/Establishment
The company opened its first super-sized store.
1984
Stock Listings/IPO
The company moved its listing from NASDAQ to the New York Stock Exchange.
1981
Stock Listings/IPO
The company got listed on NASDAQ.
1978
Incorporation/Establishment
The Home Depot, Inc. was established in Atlanta, Georgia, the US.
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6 The Home Depot, Inc. - Company Statement A statement by Mr. Craig A. Menear the Chairman, Chief Executive Officer and the President of The Home Depot, Inc. is given below. The statement has been taken from the company‟s 2015 annual report. Dear Shareholders Fiscal 2015 was another record setting year for The Home Depot. Our sales, net earnings and customer satisfaction scoreswere the highest in Company history. Sales grew $5.3 billion to $88.5 billion, an increase of 6.4 percent from fiscal 2014,with comparable store sales up 5.6 percent for the Company and 7.1 percent in the U.S. We saw positive comparabl e store sales in all three U.S. Divisions and positive comparable store sales in local currency in Canada and Mexico. With the close of our fourth quarter, this marks 17 quarters in a row of positive comparable store sales for our Canadian business and 49 quarters in a row of positive comparable store sales for our Mexican business. In addition, our interconnected business continues to be a competitive advantage and online sales grew profitably by $1 billion in fiscal 2015 to $4.7 billion in sale s, representing growth of 25.4 percent from the prior year. During the year we purchased Interline Brands, a leading national distributor and direct marketer of broad -line maintenance, repair and operations (“MRO”) products. This opens up a new $50 billion market opportunity in the multi-family, hospitality and institutional spaces. We are very excited to have Interline‟s associates join The Home Depot family, and we believe that together, we will enhance our ability to serve our Pro customers. In fiscal 2015, we recorded the highest net earnings in Company history. Diluted earnings per share grew 15.9 percent to $5.46 and our return on invested capital grew 310 basis points to 28.0 percent. Over the course of the year, we returned over $10 billion dollars to our shareholders in the form of dividends and share repurchases. We delivered these results by staying true to our values and true to our strategy. Our strategy has been anchored to our three-legged stool strategic platform. As we go forward, our strategy will not be changing, but it will evolve as we continue to lean into an interconnected retail experience to better meet our customers‟ needs. In 2015, we restructured our annual strategic planning process by addressing three main work streams. First, we identified potential disruptors to our business - what we referred to as our “War Games”. Second, we held discussions on ideas that would expand our sales growth over the next several years. And third, we spent a considerable amount of time on productivity ideas. This process, which we undertook with the oversight of our Board of Directors, solidified our focus on growth and productivity under our three-legged stool strategic platform. In addition, we identified various actions to reduce the effect of many of the potential disruptor activities. The three legs of our stool represent: 1. What we are passionate about: the Customer Experience 2. What we are best in the world at: Product Authority and 3. What drives our economic engine: Productivity and Efficiency Driven by Effective Capital Allocation. We tie the “legs of the stool” together at the seat by what we call interconnected retail - One Home Depot serving our customers the way they want to be served. Our strategy, along with our orange-blooded associates, has and will continue to enable us to be the number one home improvement retailer in the world. Customer Experience Customer experience is much more than just customer service…it is about providing a seamless and frictionless experience no matter where our customers shop… be it in the digital world, our brick and mortar stores, at home or on the job site. Our customers are changing the way they shop and how they engage with us. For example, with our Buy Online, Pick -up In Store and Buy Online, Ship to Store programs, over 40 percent of all of our online orders are now picked up inside of a Home Depot store. For those orders that are shipped to a home or job site, we expanded our direct fulfillment capabilities and recently began shipping from our third new Direct Fulfillment Center (“DFC”). Our three new U.S. DFCs help deliver a better customer experience by allowing us to reach most of our U.S. customers in two business days or less with parcel shipping. And because we want our customers‟ experience to be as frictionless and seamless as possible, we have been working on a delivery option from each of our U.S. stores. This program will allow our customers to order product in -store or online and have it delivered to their home or to the job site within a defined time slot. We are excited to be rolling this program out in 2016. Our single greatest asset is our more than 385,000 orange-blooded associates. As our customers‟ needs and expectations change, our associates remain committed to helping our customers by providing an excellent customer experience. As a result of these efforts, we have seen consistent improvement in our customer satisfaction scores. Product Authority We are committed to being the number one retailer in product authority for home improvement. We believe we offer the most comprehensive assortment of brands at compelling values. Previously, our stores gave us an advantage due to their
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large size. Today‟s digital world somewhat takes away the store size advantage, but it does allow for a l evel of product customization that is just not efficient in a store setting. We continue to work towards offering our customers the products they want through the most appropriate channel. Our merchants are focused on curating the right assortments for our customers, both in-store and online. By leveraging data, our merchants are better able to understand our customers‟ preferences so that we can put the right product, on the right shelf, in the right store and online. We will do this while dr iving a deeper collaboration with our suppliers in a way that we never have before. From product innovation and development to marketing and fulfillment, we are working with our suppliers to bring innovative and exclusive products to our customers at great everyday values. Disciplined Capital Allocation Our capital allocation policy is straightforward and firmly in place. First, we will continue to invest in our business to make sure that we‟re driving growth as well as productivity and efficiency. We will push oursel ves to be the low-cost providers in the marketplace. This means much deeper cross-functional internal work, as well as a completely different approach with our external suppliers, one that requires deeper, more integrated, and longer-term planning. Further, our stores and our interconnected platform are significant assets, and we will continue to reinvest in them to ensure they remain relevant to ou r customers. For our shareholders, we also intend to increase our dividend every year, targeting a payout ratio of 50 percent of net earnings. In February 2016, we announced a 17 percent increase in our quarterly dividend to $0.69 per share, or an annual dividend of $2.76 per share, the seventh consecutive increase in our annual dividend. We will return excess cash to our shareholders through share repurchases. In fiscal 2015, we repurchased a total of $7 billion, or 59 million shares, of our outstanding stock. This leaves us with $11 billion remaining in our current share repurchase authorization. Since 2002 we have repurchased approximately 1.3 billion shares for a total of $60 billion, representing an average price of approximately $48 per share. Looking Ahead In December of 2015, we set forth our new long-term financial targets. By the end of fiscal 2018, we expect to grow sales to $101 billion while achieving a 14.5 percent operating margin and a 35 percent return on invested capital. Our Culture The Home Depot continues to be a business driven by a commitment to its values and strong culture. In fiscal 2 015, our associates volunteered over 224,000 hours with Team Depot, our associate-led volunteer force. Eleven hundred projects were completed to serve veterans in our communities. Through The Home Depot Foundation, we have invested more than $130 million to support the needs of veterans over the past five years. And along with giving back comes thinking about how we impact the environment. This is good for our customers, our partners, our shareholders, and our environment. We are committed to providing sustainability leadership through greenhouse gas reduction efforts. We recently were named a 2015 Industry Leader by the Carbon Disclosure Project, an independent organization working with businesses to reduce greenhouse gases and drive sustainable water use. Through our continued focus on this effort, we have made significant progress in becoming a more sustainable company. In 2010 we set a five year goal to reduce the energy use in our stores by 20 percent over 2004 levels. We not only met this goal in 2014 , but exceeded it, reducing store energy use by over 30 percent. We recently set a new goal to further reduce the total energy use in our stores by another 20 percent over 2010 levels by 2020. The Home Depot has plenty of opportunities ahead. We believe that by executing against our three-legged stool strategy, we will drive even more growth and productivity for the Company. This strategy will ensure that our customers are more satisfied. Our associates will have better career opportunities. Our vendor partners will have higher growth, and our shareholders will have higher returns. We will focus on connecting our strategy and our business more closely with our suppliers and business partners to create a culture of collaboration. Peter Drucker once said, “Culture eats strategy for breakfast.” We will deliver this staying true to our values, and that is the best strategy of all. Litigation, Claims and Government Investigations In addition to the above expenses, we believe it is probable that the payment card networks will make claims against us. The ultimate amount of these claims will likely include amounts for incremental counterfeit fraud losses and non -ordinary course operating expenses (such as card reissuance costs) that the payment card networks assert they or their issuing banks have incurred. In order for us to have liability for such claims, we believe it would have to be determined, among other things, that (1) at the time of the Data Breach the portion of our network that handles payment card data was noncompliant with applicable data security standards, and (2) the alleged noncompliance caused at least some portion of the compromise of payment card data that occurred during the Data Breach. Although an independent third-party assessor found the portion of our network that handles payment card data to be compliant with applicable data security standards in the fall of 2013, and the process of obtaining such certification for 2014 was ongoing at the time of the Data Breach, in March 2015 the forensic investigator working on behalf of the payment card networks alleged that we were not in compliance with certain of those standards at the time of the Data Breach. As a result, we believe it is probable that the payment card networks will make
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claims against us and that we will dispute those claims. When those claims are asserted, we will have to determine, based on the facts and information then available to us, whether to litigate or seek to settle those claims. At this time, we believe that settlement negotiations will ensue and that it is probable that we will incur a loss in connection with those claims. We cannot reasonably estimate a range of losses because no claims have yet been asserted and because there are significant factual and legal issues to be resolved. We will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. We believe that the ultimate amount paid on payment card network claims could be material to our consolidated financial condition, results of operations, or cash flows in future periods. In addition, at least 57 actions have been filed in courts in the U.S. and Canada, and other claims may be asserted against us on behalf of customers, payment card brands, payment card issuing banks, shareholders or others seeking damages or other related relief, allegedly arising from the Data Breach. Furthermore, several state and federal agencies, including State Attorneys General, are investigating events related to the Data Breach, including how it occurred, its consequences and our responses. We are cooperating in the governmental investigations, and we may be subject to fines or other obligations. While a loss from these matters is reasonably possible, we are not able to estimate the costs, or range of costs, related to these matters because the proceedings remain in the early stages, alleged damages have not been specified, there is uncertainty as to the likelihood of a class or classes being certified or the ultimate size of any class if certified, and th ere are significant factual and legal issues to be resolved. We have not concluded that a loss from these matters is probable; therefore, we have not recorded an accrual for litigation, claims and governmental investigations related to these matters in fiscal 2014. We will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. We believe that the ultimate amount paid on these actions, claims and investigations could be material to our consolidated financial condition, results of operations, or cash flows in future periods. Future Costs We expect to incur significant legal and other professional services expenses associated with the Data Breach in future periods. We will recognize these expenses as services are received. Costs related to the Data Breach that may be incurred in future periods may also include liabilities to payment card networks for reimbursements of credit card fraud and card reissuance costs; liabilities related to our private label credit card fraud and card reissuance costs; liabilities from current and future civil litigation, governmental investigations and enforcement proceedings; future expenses for legal, investigative an d consulting fees; and incremental expenses and capital investments for remediation activities. We believe that the ultimate amount paid on these services and claims could be material to our consolidated financial condition, results of operations, or cash flows in future periods. Insurance Coverage We maintained $100 million of network security and privacy liability insurance coverage in fiscal 2014, above a $7.5 million deductible, to limit our exposure to losses such as those related to the Data Breach. As of February 1, 2015, we had received an initial payment of $10 million of insurance reimbursements. In fiscal 2015, we entered into a new policy, with $100 million of network security and privacy liability insurance coverage, above a $10 million deductible, to limit our exposure to similar losses. Key Initiatives In fiscal 2014, we continued to focus on the following key initiatives: Customer Service – Our customer service initiative is anchored on the principles of simplifying the business, creating an emotional connection with customers, putting customers first and taking care of our associates. In fiscal 2014, we completed the rollout of our second generation FIRST phone, a handheld mobile customer service tool used by our store associates. The latest FIRST phone generation provides a more intuitive smartphone interface, internet access to convert online sales in the aisle, integrated mobile checkout and greatly improved overall processing speed. Product Authority – Our product authority initiative is facilitated by our merchandising transformation and portfolio strategy, which is focused on delivering product innovation, assortment and value. In fiscal 2014, we continued to introduce a wide range of innovative new products to our professional, do-it-for-me and do-it-yourself customers, while remaining focused on offering everyday values in our stores and online. Using our new merchandising assortment planning and pricing tools in fiscal 2014, we reviewed approximately one-third of the products offered in a typical store, allowing us to better match our assortments to local customer preferences, regulations and demographics. We also used these tools to help us make other focused merchandising decisions, including decisions regarding our markdown and clearance process. Disciplined Capital Allocation, Productivity and Efficiency – Our approach to driving productivity and efficiency is advanced through continuous operational improvement in the stores and our supply chain, disciplined capital allocation and building shareholder value through higher returns on invested capital and total value returned to shareholders in the form of dividends and share repurchases. We repurchased a total of 80 million shares for $7.0 billion through Accelerated Share Repurchase ("ASR") agreements and the open market during fiscal 2014. In addition, in February 2015, our Board of Directors authorized a new $18.0 billion share repurchase program that replaces the previous authorization, and we announced a 26% increase in our quarterly cash dividend to $0.59 per share.
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In January 2015, we acquired HD Supply Hardware Solutions, known as Crown Bolt, a leading supplier of fasteners and builders hardware to retailers in the U.S. We expect this acquisition to further enhance our supply chain capabilities and product offerings in hardware. In fiscal 2014, we opened six new stores in Mexico, including one relocation, and opened one new store in Canada, for a total store count of 2,269 at the end of fiscal 2014. As of the end of fiscal 2014, a total of 292 of our stores, or 12.9%, were located in Canada and Mexico. We generated $8.2 billion of cash flow from operations in fiscal 2014. This cash flow, along with $2.0 billion of long -term debt issued in fiscal 2014 and cash on hand, was used to fund $7.0 billion of share repurchases, pay $2.5 billion of dividends, fund $1.4 billion in capital expenditures, and pay for the acquisition of HD Supply Hardware Solutions. Our inventory turnover ratio was 4.7 times at the end of fiscal 2014 compared to 4.6 times at the end of fiscal 2013. Our return on invested capital (computed on net operating profit after tax for the trailing twelve months and the average of beginning and ending long-term debt and equity) was 24.9% for fiscal 2014 compared to 20.9% for fiscal 2013. Interconnected Retail – Our focus on interconnected retail, which connects our other three key initiatives, is based on building a competitive and seamless platform across all commerce channels. In fiscal 2014, we continued to enhance our website and mobile experience, resulting in increased traffic to our websites, increased online sales conversion rates and an increase in the number of orders being picked up in our stores. Almost 40% of our online orders are picked up in our stores through our Buy Online, Pick-up In Store ("BOPIS") and Buy Online, Ship to Store ("BOSS") programs. Additionally, we improved navigation, enhanced search capabilities and expanded chat functionality across our online platforms. Sales from our online channels increased 36.9% for fiscal 2014 compared to fiscal 2013 and represented approximately 4.5% of our total Net Sales for fiscal 2014. In fiscal 2014, we started a pilot for Buy Online, Deliver From Store ("BODFS"), which complements our existing BOPIS and BOSS interconnected retail programs. Further, we opened two of three planned direct fulfillment centers in fiscal 2014 and plan to open the third direct fulfillment center in the second half of fiscal 2015. These highly automated facilities will su pport our online growth by providing a balance of cost efficiency and speed in shipping online orders to meet our customers' needs. Results of Operations For an understanding of the significant factors that influenced our performance during the past three fiscal years, the following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this report. Fiscal 2014 Compared to Fiscal 2013 Net Sales Net Sales for fiscal 2014 increased 5.5% to $83.2 billion from $78.8 billion for fiscal 2013. The in crease in Net Sales for fiscal 2014 reflects the impact of positive comparable store sales driven by increased customer transactions and average ticket growth. Total comparable store sales increased 5.3% for fiscal 2014 on top of an increase of 6.8% for fiscal 2013. The positive comparable store sales for fiscal 2014 reflect a number of factors, including the execution of our key initiatives, continued strength in our maintenance and repair categories, and an improved U.S. home improvement market. All of our departments posted positive comparable store sales for fiscal 2014. Comparable store sales for our Tools, Millwork, Kitchen, Bath, Décor, Plumbing, Electrical, Lighting and Hardware product categories were above or at the Company average for fiscal 2014. Further, our comparable store customer transactions increased 3.5% for fiscal 2014 and comparable store average ticket increased 1.8% for fiscal 2014, due in part to strong sales in big ticket purchases, such as appliances and water heaters, and sales growth in our services business. Gross Profit Gross Profit increased 5.7% to $29.0 billion for fiscal 2014 from $27.4 billion for fiscal 2013. Gross Profit as a percent of Net Sales, or gross profit margin, was 34.8% for both fiscal 2014 and 2013. Gross profit margin for fiscal 2014 was similar to gross profit margin for fiscal 2013 due to benefits from changes in the mix of products sold and productivity in our supply chain, partially offset by higher shrink. Operating Expenses Selling, General and Administrative expenses ("SG&A") increased 1.4% to $16.8 billion for fiscal 2014 from $16.6 billion for fiscal 2013. SG&A for fiscal 2014 included $63 million of pretax expenses related to the Data Breach, partially offset by a $30 million receivable for costs we believe are reimbursable and probable of recovery under our insurance coverage, for pretax net expenses of $33 million. As a percent of Net Sales, SG&A was 20.2% for fiscal 2014 compared to 21.1% for fiscal 2013. The decrease in SG&A as a percent of Net Sales for fiscal 2014 reflects expense leverage resulting from the positive comparable store sales environment and strong expense controls, partially offset by expenses related to the Data Breach.
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Depreciation and Amortization increased 1.5% to $1.7 billion for fiscal 2014 from $1.6 billion for fiscal 2013. Depreciation and Amortization as a percent of Net Sales was 2.0% for fiscal 2014 compared to 2.1% for fiscal 2013. The decrease in Depreciation and Amortization as a percent of Net Sales for fiscal 2014 reflects expense leverage resulting from the positive comparable store sales environment. Operating Income Operating Income increased 14.2% to $10.5 billion for fiscal 2014 from $9.2 billion for fiscal 2013. Operating Income as a percent of Net Sales was 12.6% for fiscal 2014 compared to 11.6% for fiscal 2013. Interest and Other, net In fiscal 2014, we recognized $493 million of Interest and Other, net, compared to $699 million for fiscal 2013. Interest and Other, net, as a percent of Net Sales was 0.6% for fiscal 2014 compared to 0.9% for fiscal 2013. Interest and Other, net, for fiscal 2014 included a $323 million pretax gain related to the sale of a portion of our equity ownership in HD Supply. This was partially offset by additional interest expense associated with $2.0 billion of long-term debt issued in June 2014. Provision for Income Taxes Our combined effective income tax rate was 36.4% for both fiscal 2014 and 2013. Diluted Earnings per Share Diluted Earnings per Share were $4.71 for fiscal 2014 compared to $3.76 for fiscal 2013. Diluted Earnings per Share for fiscal 2014 reflect $0.15 of benefit from the gain related to the sale of a portion of our equity ownership in HD Supply and a negative impact of $0.02 for expenses incurred in connection with the Data Breach.
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7 The Home Depot, Inc. - Locations and Subsidiaries
7.1 The Home Depot, Inc. - Head Office
The Home Depot, Inc.
2455 Paces Ferry Road
Atalnta
Georgia
Zip: 30339-1834
United States of America
Tel: + 1 770 4338211
7.2 The Home Depot, Inc. - Other Locations and Subsidiaries
Table 5: The Home Depot, Inc. - Subsidiaries
Home Depot of Canada Inc.
900-1 Concorde Gate
Toronto
Canada
Tel: + 1 800 6280525
Fax: +1 877 4969470
Zip: M3C 4H9
Homer TLC, Inc
United States of America
Home Depot U.S.A., Inc.
Atlanta
United States of America
Home Depot Services, LLC
United States of America
Home Depot International, Inc
Atlanta
United States of America
HD Development Holdings, Inc.
United States of America
HD Development of Maryland, Inc.
United States of America
Home Depot Store Support, LLC
United States of America
Source: Canadean
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8 The Home Depot, Inc. - Business Analysis
8.1 The Home Depot, Inc. - Company Overview
The Home Depot, Inc. (Home Depot) carries out the retailing of home improvement products. It offers building materials, home improvement supplies, appliances, and lawn and garden products. The company offers various services including credit card services, home delivery, e-retail, truck rental and installation services. It caters mainly to three types of customers including Do-It-Yourself (D-I-Y), Do-It-For-Me (D-I-F-M), and Professional customers. It sells products online through its website, www.homedepot.com. The company‟s operations are spread across the US, Puerto Rico, the US Virgin Islands, Guam, Canada and Mexico. Home Depot is headquartered in Atlanta, Georgia, the US.
8.2 The Home Depot, Inc. - Business Description
Home Depot is one of the largest home improvement retailers based in the US. The company sells its merchandise in a sales area of approximately 104,000 sq. ft. of enclosed space, with 24,000 additional sq. ft. of outside garden area. As of January 2016, it operated through 263 warehouses and distribution centers in 43 states of the US. It also manages 34 bulk distribution centers including 22 stocking distribution centers in the US, Canada and Mexico, and ten specialty distribution centers in the US and Canada. As of January 2016, the company operated a total of 2,274 Home Depot stores with average size of 104,000 sq. ft. per store, out of which 90% were owned by the company with holding an area of 212.5 million sq. ft., and 10% of stores leased with an area of approximately 24.8 million sq. ft. The company primarily classifies its customers into three groups: Do-It-Yourself (DIY) Customers, Do-It-For-Me (DIFM) Customers and Professional Customers. Do-It-Yourself (DIY) Customers are the home owners who purchase products and complete their own projects and installations. The company associate assists these customers with specific product and installation questions both in stores and through online resources. Do-It-For-Me (DIFM) Customers are home owners who purchase materials and hire third parties to complete the project or installation. The company‟s stores offer variety of installation services targeted at DIFM customers who purchase products and installation of those products. Installation programs include many categories such as flooring, cabinets, countertops, water heaters and sheds. Professional Customers are primarily professional renovators/remodelers, general contractors, repairmen, installers, small business owners and tradesmen. The company offers its products under 15 categories: Flooring, Tools, Paint, Lumber, Kitchen and bath, Plumbing, Indoor garden, Building materials, Hardware, Decor, Outdoor garden, Millwork, Appliances, Electrical, and Lighting. Home Depot‟s Kitchen and bath category offers products such as cabinets and cabinets hardware, kitchen sink, carts, islands, and utilities tables, countertops and backsplashes, kitchen faucets, water dispensers and filters, cooking and food preparation, dining and entertainment, kitchen storage and organization, small appliance and related products. It also offers bathroom accessories, bathroom faucets, bathroom safety and accessibility, bathroom sinks, bathroom vanities and cabinets, bathtubs and whirlpools, showers, toilets seats and bidets. In FY2016, the kitchen and bath category reported revenues of US$6,874 million, accounting for 7.8% of the company‟s total revenue. The Indoor Garden category offers products such as garden plants and flowers, and seeds. In FY2016, the this category reported revenues of US$8,298 million, accounting for 9.4% of the company‟s total revenue. The Paint category includes products such as interior paint and stain, beck and patio restoration, rubberized coatings, spray paint, paint thinner, solvent and cleaners, exterior paint and stain, concrete and garage floor paint, paint sprayer, and caulking and sealants. It also comprises paint brushes, paint roller, paint color and sample, sandpaper, patching and repairs, furniture paint and crafts, traps, drops, cloths and plastic sheeting, primers and other related products. In FY2016, the Pai nt category reported revenues of US$7,465 million, accounting for 8.4% of the company‟s total revenue. The Outdoor Garden category includes products such as lawn mowers, outdoor power equipment, watering irrigation, lawn care, pots and planters and garden tool. In FY2016, the Outdoor Garden category reported revenues of US$6,565 million, accounting for 7.4% of the company‟s total revenue. The Lumber category includes lumber and composites, fencing, parks, playsets and playhouse and decking products. In FY2016, the Lumber category reported revenues of US$6,278 million, accounting for 7.1% of the company‟s total revenue. Home Depot‟s Flooring category comprises area rugs and mats, carpets and carpet tiles, exercise and gym flooring, laminate flooring, tiles, tile tools and tile set, under floor heating, vinyl flooring and resilient flooring and wood flooring. In FY2016, the Flooring category reported revenues of US$6,194 million, accounting for 7% of the company‟s total revenue. The Building Materials category includes acrylic sheets, boat docks and hardware, builder‟s hardware, ceilings, concrete, cement and masonry, drywall, fireplace and hearth, insulation, ladders, and safety equipment. In FY2016, the Building Materials category reported revenues of US$6,396 million, accounting for 7.2% of the company‟s total revenue.
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The Plumbing category includes products such as drain openers, pipe insulation, pipes, fittings and valves, plumbing parts and repairs, plumbing tools, pressure tanks, pumps, stops, drains and drain plugs, water heaters, and utilit y sinks. In FY2016, the Plumbing category reported revenues of US$6,346 million, accounting for 7.2% of the company‟s total revenue. The Electricals category comprises alternative energy solutions, dimmers, switches and outlets, door bells and intercoms, electrical boxes, conduit and fittings, electrical tools and accessories, extension cords and surge protectors, fire safety, home automation, motors and parts, power distribution and wall plates and accessories. In FY2016, the Electricals category reported revenues of US$5,833 million, accounting for 6.6% of the company‟s total revenue. The Tools category includes products such as, power tools, hand tools, tool storage, welding and soldering. In FY2016, the Tools category reported revenues of US$6,060 million, accounting for 6.8% of the company‟s total revenue. Home Depot‟s Hardware category includes door knobs and hardware, cabinet and furniture hardware, fasteners, mailboxes, ladders and wet/dry vacuums. In FY2016, the Hardware category reported revenues of US$5,296 million, accounting for 6% of the company‟s total revenue. The Millwork category includes molding and paneling, columns and accessories, corbels, dowels, faux woods beams and interior stair parts. In FY2016, the Millwork category reported revenues of US$4,924 million, accounting for 5.6% of the company‟s total revenue. The company‟s Appliances category includes products such as refrigerators, washers and dryers, dishwashers, kitchen packages, cooking appliances, vacuum cleaners and floor care. It also comprises air conditioners, portable fans, heaters, air purifiers, mixers, and coffee and tea makers, and toaster ovens and countertop ovens. In FY2016, the Appliances category reported revenues of US$6,534 million, accounting for 7.4% of the company‟s total revenue. The Lighting category includes indoor lightning accessories, light bulbs, led lights, chandeliers and pendants, lamps and shades, sconces and vanity lighting and outdoor lighting. In FY2016, the Lighting category reported revenues of US$2,699 million, accounting for 3% of the company‟s total revenue. The Decor products include artificial plants and flowers, bedding, blinds and window treatments, drapery hardware, drapes and curtains, furniture, holiday decorations, home accents, shelves, wall decor and wallpaper. In FY2016, the Decor category reported revenues of US$2,757 million, accounting for 3.1% of the company‟s total revenue.
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9 The Home Depot, Inc. - SWOT Analysis
9.1 The Home Depot, Inc. - SWOT Analysis - Overview
The Home Depot, Inc. (Home Depot) is the retailer of home improvement products. Sustained financial growth, multi- channel selling, and diversified product and service portfolio are the company‟s major strengths, whereas huge debt, data breach and lower inventory turnover ratio remain major areas of concern. In the future, expanding retail market in the US, focus on multi-family, hospitality and institutional markets, and focus on customer-centric business model are likely to provide growth opportunities to the company. However, stringent regulations, expansion by competitor and foreign exchange risks could affect its growth.
9.2 The Home Depot, Inc. - Strengths
9.2.1 Strength - Sustained Financial Growth
Home Depot reported a strong financial growth during the review year. The company‟s total revenue increased to US$88.5 billion in FY2016 compared to US$83.2 billion in FY2015, representing an annual growth of 6.4%. This was primarily due to 5.6% increase in the comparable store sales during the review year, which could be attributed to 4% increase in the comparable store customer transactions and 1.6% increase in comparable store average ticket. Home Depot‟s online sales grew by 25.4% to reach US$4.7 billion in FY2016 over the previous year. It has reported a sustainable growt h in its revenue during the last five-year period. The company‟s total revenue grew at a CAGR of 5.9% during 2012-2016. It also reported 17 quarters in a row of positive comparable store sales for the Canadian business and 49 quarters in a row of positive comparable store sales for the Mexican business. The company‟s operating income increased by 12.5% to US$11.8 billion in FY2016 compared to US$10.5 billion in FY2015. Similarly, its net income increased by 10.5% from US$6.3 billion in FY2015 to US$7 billion in FY2016. It also reported the highest net earnings in its history during the review year. Its diluted earnings per share increased by 15.9% to US$5.5 and the return on invested capital grew 310 basis points to 28% in FY2016 over FY2015. Sustainable financial growth enables the company to further strengthen its market position.
9.2.2 Strength - Multi-Channel Selling
Home Depot was the largest home improvement retailer in the US, Canada and Mexico based on net sales. The company through its wide network of stores provides building materials, home improvement products and lawn and garden products. As of January 2016, it operated a total of 2,274 retail stores, which included 1,977 Home Depot stores in the US including the Commonwealth of Puerto Rico and the territories of the US Virgin Islands and Guam, 182 stores in Canada, and 115 stores in Mexico. The company owned 90% of its store covering an area of 212.5 million sq. ft., and around 10% of its stores were leased to third party vendors with a total area of 24.8 million sq. ft. It also operated 263 warehouses and distribution centers comprising 52.5 million sq. ft. of total space, of which 1.5 million was company-owned and 51 million was leased. Home Depot‟s online platforms efficiently support its physical sores. The company registered over 1.4 billion visits at its online properties during the review year and over 40% of its online orders were picked up from its stores through Buy Online, Pick-up In Store (BOPIS), and Buy Online, Ship to Store (BOSS) offerings. Its online channels sales increased by 25.4% in FY2016 as compared to FY2015, and accounted for 5.3% of its total sales during the review year.
9.2.3 Strength - Diversified Product and Service Portfolio
Home Depot‟s diversified range of products and services and its wide network of stores enable it to improve sales and increase profitability. Its store inventory consists of almost 30,000 to 40,000 different kinds of building materials, home improvement supplies, appliances, and lawn and garden products. It offers its products under various categories, namely flooring, tools, paint, lumber, kitchen and bath, plumbing, indoor garden, appliances, building materials, hardware, decor, outdoor garden, millwork, electrical, and lighting. In FY2016, the company generated 9.4% of the total company‟s revenue from indoor garden category, followed by paint (8.4%), kitchen and bath (7.8%), outdoor garden (7.4%), appliances (7.4%), building materials (7.2%), plumbing (7.2%), lumber (7.1%), flooring (7%), tools (6.8%), electrical (6.6%), hardware (6%), millwork (5.6%), décor (3.1%) and lighting (3%). It also offers a variety of installation services through pre-screened independent contractors. It offers installation services for products ranging from windows to water heaters, floors to roofs, and kitchen cabinets to vinyl siding. It also offers professional installation of products such as generators, furnaces and central air systems through its in-home sales programs. The company provides credit services and assistance with the selection of tools and supplies to its customers. Diversified product and service portfolio enables the company in meeting th e varied needs of its customers, which in turn help improve its financial performance.
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9.3 The Home Depot, Inc. - Weaknesses
9.3.1 Weakness - Huge Debt
High debt remains a major concern for the company. In FY2016, the company had a total long term debt of US$20.9 billion as compared to US$16.9 billion in FY2015. In FY2016, total long term debt increased by 23.8%, whereas total revenue increased by 6.4% for the same period. This increase in debt levels indicates that Home Depot could incur higher interest expense in the future, which would affect its profitability. In FY2016, it reported an interest expense of US$919 million an increase of 107% over the previous year. The company recorded debt to equity ratio (D/E) of 3.3 in FY2016, which was significantly higher than that of one of its major competitors Best Buy Co, Inc., which reported value 0.4 for the same period. The increase in the D/E ratio was primarily due to increase in the total debt of the company by 23.9%. The company‟s business operations could be affected, if it is unable to generate sufficient cash flow for such high debt servicing. It also might become difficult for the company to raise funds from the debt market at favorable terms.
9.3.2 Weakness - Lower Inventory Turnover Ratio
The company reported lower inventory turnover ratio during the review year. In FY2016, Home Depot reported inventory turnover ratio of 4.9, which was significantly lower than that of one of its major competitors, Best Buy Co, Inc., which reported value of 6 for the same period. With the given turnover ratio, Home Depot takes 74 days to sale its inventory as compared to 61 days by Best Buy. Lower inventory turnover than competitors indicates that the company takes more days to clear its inventory in comparison with its competitors. The decline in the turnover ratio and higher inventory turnover da ys signify that the company incurs high inventory carrying costs, which affect its operating performance.
9.3.3 Weakness - Data Breach
Data breach remains as a major concern for the company. In FY2014, Home Depot‟s payment data system were breached and impacted customers who used payment cards at self-checkout systems in the US and Canadian stores. The company faced several litigations and contingencies due to this data breach. At least 57 putative class actions were filed against th e company in courts of the US and Canada arising from the data breach. In FY2016, the payment card networks claimed against the company for the cost they incurred or their issuing bank due to data breach. In FY2015, the company also entered into settlement agreements with Discover, Master Card, American Express and Visa with respect to their claims against the company. In FY2016, the company incurred US$198 million of pretax gross expenses related to data breach. These expenses include costs to investigate the Data Breach, credit monitoring, customer impact, pay legal and other professional services, provide identity protection services and increase call center staffing. The company incurs significant expenses owing to such data breach, which increase its operating costs.
9.4 The Home Depot, Inc. - Opportunities
9.4.1 Opportunity - Expanding Retail Market in the US
The company stands to benefit from growing retail market in the US. According to in -house research, the retail sales in the US grew by 2.9% in 2014 and expected to reach US$3,630.1 billion in 2019 growing at a CAGR of 3.1% during 2014 -2019. Food and grocery is expected to lead with a share of 47.9% of overall retail sales, followed by apparel, accessories, luggage and leather goods (16%), home and garden products (14.7%), electrical and electronics (9.3%), furniture and floor coverings (3.5%), Books, news and stationery (2.7%), sports and leisure equipment (2.7%), health and beauty (2.5%), and music, video and entertainment software (0.9%) in 2019. Home Depot has taken initiatives to strengthen its presence in the US. In FY2016, the company opened its third direct fulfillment center (DFC). These new facilities are expected to enable the company to reach 90% of its US customers in two business days. It also added over 90 distribution points to facilitate fast delivery of maintenance, repair and operations (MRO) products. These investments could strengthen the company‟s capabilities to explore expanding US retail market.
9.4.2 Opportunity - Focus on Multi-family, Hospitality and Institutional Markets
The company focuses on strengthening its presence in multi-family, hospitality and institutional markets through the integration of related brands. In August 2016, Home Depot acquired Interline Brands, Inc. (Interline), a marketer and distributor of broad-line MRO products. The acquisition enables the company to enter multi-family, hospitality and institutional markets, which is estimated to be worth of US$50 billion. This acquisition is also expected to enhance its abil ity to serve professional customers, pro group customers, besides expanding its market presence in retail, services and MRO markets. In FY2015, the company also acquired additional sourcing offices in China, Thailand and Indonesia and added over 90 distribution points with fast delivery of MRO products. Such acquisitions offer a steady re venue source apart from providing business expansion opportunities to the company.
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9.4.3 Opportunity - Focus on Customer-Centric Business Model
The company adopted three legged stool strategy, which includes customer experience, product authority, and product ivity and efficiency driven by effective capital allocation. As part of developing a customer-centric business environment, Home Depot trained its store associates on the „Customer FIRST program‟ in FY2016. This program provides customers with seamless and frictionless shopping experience. It utilized web enabled handheld devices called FIRST phones to enhance the customer experience. The company also focuses on mobile experience through the improvements in the digital content and sites to simplify the online experience. This program is also expected to allow customers to order product in-store or online and have it delivered to their home or to the job site within a defined time slot.
9.5 The Home Depot, Inc. - Threats
9.5.1 Threat - Stringent Regulations
The company is subject to the adoption, interpretation and enforcement by governmental agencies in the US (including on federal, state and local levels) and abroad of laws, rules, regulations or policies. It includes any changes there to, such as competition, restrictions on trade, license, manufacturing and permit requirements, privacy and data protection laws, import and export license requirements, anti-corruption laws, records and information management, environmental laws, tariffs and taxes. The company is also subject to health care reform requirements such as the Patient Protection and Affordable Healthcare Act, laws relating to the sourcing of „conflict minerals‟, regulation of its brochures, product claims or ingredients. These could enable Home Depot to adjust its operations and systems in certain markets where its conducts business. If the company is unable to adhere to or successfully implement processes in response to changing regulatory requirements, its business and/or reputation could be adversely affected.
9.5.2 Threat - Expansion by Competitors
Home Depot faces intense competition from both domestic and international companies in the retail market. Huge competition in the market could force the company to increase its product differentiation by offering merchandise at low prices and/or increase its promotional expenses, which would escalate its operating costs. Its major competitors include Amazon.com, Inc., Best Buy Co, Inc., Big Lots, Inc., Costco Wholesale Corporation, Pool Corporation, Rooms To Go, I nc., Sears Holdings Corporation, Snap-on Incorporated, Wal-Mart Stores, Inc. and Wolseley plc. While major competitors undertook expansion programs to match the growth rate, the market also recorded consolidation following mergers and acquisitions, and expansion. In February 2016, Amazon.com, Inc. acquired EMVANTAGE Payments Pvt. Ltd., a provider of services in the area of online payments. This acquisition is expected to enhance the development of convenient and trust worthy payment solutions for customers and the ecommerce industry in India. In August 2015. Snap-on Incorporated acquired Ecotechnics S.p.A (Ecotechnic) for approximately US$13.0 million. The deal is expected to expand the offerings of its productivity solutions for repair shop owners and managers.
9.5.3 Threat - Foreign Exchange Risks
Home Depot reports financials in the US Dollar and therefore its revenue is exposed to volatility of the US Dollar against other functional currencies such as Mexican peso and Canadian Dollar. Major elements exposed to exchange rate risks include the company's investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising from business transactions in foreign currencies. In FY2016, the company reported a loss of US$412 million from foreign currency translation adjustments as compared to a loss of US$510 million in FY2015. To minimize risks from currency fluctuations, the company could involve in foreign exchange hedging activities by entering into foreign exchange forward contracts. However, there could be no assurance that such hedging activities or measures would limit the impact of movements in exchange rates on the company's results of operations.
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10 The Home Depot, Inc. - Company Financial Analysis
10.1 The Home Depot, Inc. - Five Year Snapshot: Overview of Financial and Operational Performance Indicators
The company reported revenue of US$88,519 million during the fiscal year 2016 (2016). The company's revenue grew at a CAGR of 5.89% during 2012–2016, with an annual growth of 6.42% over 2015. During 2016, operating margin of the company was 13.30% in comparison with operating margin of 12.59% in 2015. In 2016, the company recorded a net profit margin of 7.92% compared to a net profit margin of 7.63% in 2015.
Table 6: The Home Depot, Inc. - Annual ratios
Key Ratios Unit/Currency 2016 2015 2014 2013 2012
Equity Ratios
EPS (Earnings per Share) US$ 5.46 4.71 3.76 3 2.47
Dividend per Share US$ 2.36 1.88 1.56 1.26 1.04
Dividend Cover Absolute 2.31 2.51 2.41 2.38 2.38
Book Value per Share US$ 5.04 7.13 9.07 11.98 11.64
Cash Value per Share US$ 1.77 1.32 1.4 1.68 1.29
Profitability Ratios
Gross Margin % 34.19 34.13 34.15 34.57 34.47
Operating Margin % 13.3 12.59 11.63 10.39 9.46
Net Profit Margin % 7.92 7.63 6.83 6.07 5.52
Profit Markup % 51.95 51.82 51.86 52.83 52.59
PBT Margin (Profit Before Tax) % 12.45 11.99 10.74 9.66 8.62
Return on Equity % 110.97 68.06 43 25.51 21.7
Return on Capital Employed % 39.98 36.51 30.79 26.22 21.39
Return on Assets % 16.7 15.88 13.29 11.04 9.58
Return on Fixed Assets % 46.19 42.48 36.32 30.2 25.62
Return on Working Capital % 297.32 259.58 202.34 198.62 129.49
Growth Ratios
Sales Growth % 6.42 5.54 5.43 6.19 3.53
Operating Income Growth % 12.47 14.22 18.03 16.59 14.08
EBITDA Growth % 9.43 15.08 14.85 15.02 10.92
Net Income Growth % 10.46 17.83 18.74 16.79 16.33
EPS Growth % 15.89 25.53 25.12 21.35 23.51
Working Capital Growth % -1.81 -10.97 15.86 -23.99 53.23
Cost Ratios
Operating Costs (% of Sales) % 86.7 87.41 88.37 89.61 90.54
Administration Costs (% of Sales) % 18.98 19.57 20.46 22.08 22.77
Liquidity Ratios
Current Ratio Absolute 1.32 1.36 1.42 1.34 1.55
Quick Ratio Absolute 0.37 0.37 0.39 0.41 0.45
Cash Ratio Absolute 0.18 0.15 0.18 0.22 0.21
Leverage Ratios
Debt to Equity Ratio Absolute 3.36 1.84 1.18 0.61 0.6
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Table 6: The Home Depot, Inc. - Annual ratios
Key Ratios Unit/Currency 2016 2015 2014 2013 2012
Net Debt to Equity Absolute 3.01 1.66 1.02 0.47 0.49
Debt to Capital Ratio Absolute 0.72 0.6 0.49 0.36 0.35
Efficiency Ratios
Asset Turnover Absolute 2.11 2.08 1.95 1.82 1.74
Fixed Asset Turnover Absolute 3.99 3.66 3.38 3.11 2.88
Inventory Turnover Absolute 4.93 4.95 4.69 4.57 4.47
Current Asset Turnover Absolute 5.37 5.44 5.16 4.86 4.85
Capital Employed Turnover Absolute 14.02 8.92 6.29 4.21 3.93
Working Capital Turnover Absolute 22.35 20.62 17.4 19.12 13.68
Revenue per Employee US$ 229919
Net Income per Employee US$ 18205
Capex to Sales % 1.7 1.73 1.76 1.76 1.73
Source: Canadean
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11 The Home Depot, Inc. - Interim ratios
Table 7: The Home Depot, Inc. - Interim ratios
Key Ratios Unit/Currency May-2016 Jan-2016 Nov-2015 Aug-2015
Equity Ratios
Interim EPS (Earnings per Share) US$ 1 1.17 1.35 1.73
Book Value per Share US$ 5.09 5.04 6.01 6.73
Profitability Ratios
Gross Margin % 34.23 34.11 34.67 33.69
Operating Margin % 13.52 12.15 13.66 14.69
Net Profit Margin % 7.92 7.01 7.91 9
Profit Markup % 52.04 51.77 53.07 50.81
PBT Margin (Profit Before Tax) % 12.48 11.02 12.56 14.35
Cost Ratios
Operating Costs (% of Sales) % 86.48 87.85 86.34 85.31
Administration Costs (% of Sales) % 18.81 19.91 19.07 17.31
Liquidity Ratios
Current Ratio Absolute 1.25 1.32 1.16 1.19
Quick Ratio Absolute 0.38 0.37 0.38 0.47
Leverage Ratios
Debt to Equity Ratio Absolute 3.31 3.36 2.74 2.24
Net Debt to Equity Absolute 2.79 3.01 2.34 1.67
Debt to Capital Ratio Absolute 0.71 0.72 0.74 0.71
Source: Canadean
11.1.1 The Home Depot, Inc. - Financial ratios: Capital Market Ratios
Table 8: The Home Depot, Inc. - Capital Market Ratios
Key Ratios Value
P/E (Price/Earnings) Ratio 24.13
EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization) 14.29
Enterprise Value/Sales 2.05
Enterprise Value/Operating Profit 15.43
Enterprise Value/Total Assets 4.33
Dividend Yield 0.02
Note: Above ratios are based on share price as of 01-Jun-2016. The above ratios are absolute numbers.
Source: Canadean
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11.2 The Home Depot, Inc. - Financial Performance and Ratio Charts
11.2.1 The Home Depot, Inc. - Revenue and Operating margin
The consolidated group revenue of the company for 2016 stood at US$88,519 million, which corresponds to a growth rate of 6.42% over the previous year. The operating margin of the company was 13.30% in 2016, an increase of 71.00 basis points over the previous year.
Figure 1: The Home Depot, Inc. - Revenue and Operating Profit
Source: Canadean
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11.2.2 The Home Depot, Inc. - Asset and Liabilities
The company's assets grew 5.07% over the previous year to US$41,973 million in 2016. The company's liabilities grew 16.43% over the previous year to US$35,657 million in 2016. The company's asset to liability ratio reduced from 1.30 in 2015 to 1.18 in 2016.
Figure 2: The Home Depot, Inc. - Asset and Liabilities
Source: Canadean
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11.2.3 The Home Depot, Inc. - Net Debt vs. Gearing Ratio
The company recorded higher net debt of US$19,000 million at the end of fiscal year 2016 when compared to the previous year's net debt of US$15,474 million. The company's gearing ratio for the year 2016 was 3.29, which was higher when compared to the previous year's gearing ratio of 1.81. The gearing ratio remained higher in 2016 due to higher debt funding activities over equity.
Figure 3: The Home Depot, Inc. - Net Debt vs. Gearing Ratio
Source: Canadean
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11.2.4 The Home Depot, Inc. - Operational Efficiency
The company's working capital turnover for 2016 grew to 22.35, from the previous year's working capital turnover of 20.62. In 2016, the company's asset turnover improved to 2.11 from the previous year's current ratio of 2.08.
Figure 4: The Home Depot, Inc. - Operational Efficiency
Source: Canadean
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11.2.5 The Home Depot, Inc. - Solvency
In 2016, the company's current ratio declined to 1.32 from the previous year's current ratio of 1.36. In 2016, the company‟s quick ratio remained unchanged at 0.37. In 2016, the company‟s debt ratio increased to 0.51 from the previous year's debt ratio of 0.43.
Figure 5: The Home Depot, Inc. - Solvency
Source: Canadean
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11.2.6 The Home Depot, Inc. - Valuation
As of 01-Jun-2016, the company recorded an EV/EBIT of 15.43, EV/Total Assets of 4.33 and EV/Sales of 2.05.
Figure 6: The Home Depot, Inc. - Valuation
Source: Canadean
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11.3 The Home Depot, Inc. - Competitive Benchmarking
The following companies are the major competitors of The Home Depot, Inc.: Amazon.com, Inc. (Ticker: AMZN)
Best Buy Co, Inc. (Ticker: BBY)
Big Lots, Inc. (Ticker: BIG)
Costco Wholesale Corporation (Ticker: COST)
Pool Corporation (Ticker: POOL)
Rooms To Go, Inc.
Safeway Inc.
Sears Holdings Corporation (Ticker: SHLD)
Snap-on Incorporated (Ticker: SNA)
Target Corporation (Ticker: TGT)
Wal-Mart Stores, Inc. (Ticker: WMT)
Wolseley plc (Ticker: WOS)
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For competitive benchmarking, latest financial results are considered. Following are the key performance indicators against which the companies have been benchmarked:
11.3.1 The Home Depot, Inc. - Market Capitalization
As of 01-Jun-2016, the company recorded a market capitalization of US$163,997 million, higher than its close competitors Target Corporation (Ticker: TGT) and Best Buy Co, Inc. (Ticker: BBY) which recorded market capitalizations of US$40,312 million and US$10,432 million respectively. The company recorded earnings per share of US$5.46 in 2016, which has led to a price/earnings ratio (P/E ratio) of 24.13. This was higher than the P/E ratios of its peers Wal-Mart Stores, Inc. (Ticker: WMT), Target Corporation (Ticker: TGT) and Best Buy Co, Inc. (Ticker: BBY), which recorded P/E ratio of 15.43, 13.04 and 14.00 respectively.
Figure 7: The Home Depot, Inc. - Market Capitalization
Source: Canadean Note: Company names are represented by ticker symbols Bubble size represents Market Capitalization US$ Million For those data points with negative values, bubbles will not be displayed. Where the market cap is disproportionately smaller, a bubble may not be displayed.
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11.3.2 The Home Depot, Inc. - Efficiency
The company recorded an operating margin of 13.30% in 2016. This was higher than the operating margins of its peers, Wal -Mart Stores, Inc. (Ticker: WMT), Target Corporation (Ticker: TGT) and Best Buy Co, Inc. (Ticker: BBY), which recorded the margins of 5.00%, 7.49% and 3.48% respectively. In terms of revenues, the company is 0.18 times of Wal-Mart Stores, Inc. (Ticker: WMT), 1.20 times of Target Corporation (Ticker: TGT), and 2.24 times of Best Buy Co, Inc. (Ticker: BBY).
Figure 8: The Home Depot, Inc. - Efficiency
Source: Canadean Note: Company names are represented by ticker symbols
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11.3.3 The Home Depot, Inc. - Valuation
As of 01-Jun-2016, the company‟s EV/EBIT was 15.43. This was higher than that of its peers, Wal-Mart Stores, Inc. (Ticker: WMT), Target Corporation (Ticker: TGT) and Best Buy Co, Inc. (Ticker: BBY), which reported EV/EBIT figures of 11.11, 9.66 and 7.25 respectively.
Figure 9: The Home Depot, Inc. - Valuation
Source: Canadean Note: Company names are represented by ticker symbols
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11.3.4 The Home Depot, Inc. - Turnover: Inventory and Asset
In 2016, the company reported an inventory turnover of 4.93, lower than that of its peers: du ring the same period, Wal-Mart Stores, Inc. (Ticker: WMT), Target Corporation (Ticker: TGT) and Best Buy Co, Inc. (Ticker: BBY) recorded inventory turnovers of 8.12, 6.05 and 6.01 respectively The company‟s asset turnover in 2016 was 2.11, lower than that of its peers: during the same period, Wal-Mart Stores, Inc. (Ticker: WMT) and Best Buy Co, Inc. (Ticker: BBY) recorded asset turnovers of 2.42 and 2.92 respectively.
Figure 10: The Home Depot, Inc. - Turnover: Inventory and Asset
Source: Canadean Note: Company names are represented by ticker symbols
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11.3.5 The Home Depot, Inc. - Liquidity
The company reported a current ratio of 1.32 in 2016, higher than the current ratios of its peers: during the same period, Wal-Mart Stores, Inc. (Ticker: WMT) and Target Corporation (Ticker: TGT) recorded current ratios of 0.93 and 1.12 respectively. In 2016, the company's debt to equity ratio was 3.36, higher than that of its peers: during the same period, Wal-Mart Stores, Inc. (Ticker: WMT), Target Corporation (Ticker: TGT) and Best Buy Co, Inc. (Ticker: BBY) recorded debt to equity ratios of 0.62, 0.98 and 0.40 respectively.
Figure 11: The Home Depot, Inc. - Liquidity
Source: Canadean Note: Company names are represented by ticker symbols
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12 The Home Depot, Inc. - Mergers & Acquisitions and Partnerships
12.1 The Home Depot, Inc. - M&A and Partnerships Strategy
The Home Depot acquires The Home Way
Deal Type Acquisition Deal Sub Type Majority Acquisition
Deal Status Completed Announced Date 2006-12-13
Deal in Brief
The Home Depot, a home improvement retailer, completed the acquisition of The Home Way, a China based home improvement retail chain. The transaction has received the necessary Chinese government regulatory approvals and terms of the deal were n ot disclosed. The Home Way provides Home Depot with an immediate retail presence in China with 12 stores in six cities. The acquisition will enable The Home Depot to expand its business operations in China. "This acquisition provides us with a great point of entry in one of the world's largest and fastest-growing home improvement markets," said Bob Nardelli, chairman, president & CEO, The Home Depot. "The Home Way is a strong brand that is already established as a value and price leader among Chinese consumers. W e welcome The Home Way's leadership and associates into The Home Depot family, and we look forward to the opportunity to serve Chinese consumers. In addition, we are grateful f or the support of this venture by local and national Chinese government officials."
Participant Company Information
Company Name The Home Way Involvement Type Target
Company Overview
The Home Way is a home improvement retail chain.
The Home Depot acquires Blinds.com
Deal Type Acquisition Deal Sub Type Majority Acquisition
Deal Status Completed Announced Date 2014-01-23
Deal in Brief
The Home Depot, Inc., a home improvement products retailer, has acquired Blinds.com, an online retailer of blinds. Both companies involved in the transaction are based in the US. As part of the transaction, the Blinds.com‟s team will join into Home Depo. Blinds.com‟s product portfolio includes wood blinds, faux wood blinds, aluminum blinds, vertical blinds, vertical blind alternatives, arch tops and skylights of various shades like honeycomb, woven wood, roman, roller and other shades, plantation shutters, valances and draperies. In fiscal year 2012, Home Depot had sales of US$74.8 billion and earnings of US$4.5 billion. The Company employs more than 300,000 associates and operates 2,263 retail stores in all 50 states, the District of Columbia, Puerto Rico, US Virgin Islands, Guam, 10 Canadian provinces and Mexico.
Participant Company Information
Company Name Blinds.com Involvement Type Target
Company Overview
Blinds.com is a retailer of window products. The company offers blinds, verticals, shades, shutters, draperies, outdoor products and accessories. Its products portfolio includes wood blinds, vertical blinds, roller and solar shades, pleated shades, door blinds, sliding panels, drapery hardware, custom draperies, vertical blind alternatives, plantation shutters, cornices, skylights and arches, sheer vertical shades and bamboo shades, among others. Blinds.com markets products of various brands including Bali, Graber, Coolaroo, Norman and Levolor. The company provides online ordering, shipping and installation services. It markets its products throughout the US. Blinds.com is headquartered in Houston, Texas, the US.
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The Home Depot partners with Martha Stewart
Deal Type Partnership Deal Sub Type Other
Deal Status Completed Announced Date 2009-09-14
Deal in Brief
The Home Depot, Inc., a home improvement retailer, entered into a partnership agreement with Martha Stewart Living Omnimedia, Inc., a diversified media and merchandising company. Under the agreement, partners will develop an exclusive Martha Stewart Living brand of home improvement products in select categories including Outdoor Living, Home Organization and Home decor. The new brand will be available at The Home Depot will provide its customer a distinctive, innovative merchandise at an affordable prices. The partnership will allow Martha Stewart to offer a wider audience the product and information. The partnership will enable Martha to expand its reach and business.
Participant Company Information
Company Name Martha Stewart Living Omnimedia, Inc.
Involvement Type Target
Company Overview
Jig-A-World partners with The Home Depot
Deal Type Partnership Deal Sub Type Other
Deal Status Completed Announced Date 2010-07-08
Deal in Brief
Jig-A-Loo World Inc., a Canada based retailer of dry silicone-based lubricants, through its wholly-owned subsidiary Jig-A-World USA, Inc., formed a partnership with The Home Depot, Inc., a home improvement retailer, to provide EconoGreen Plastics(TM) at Home Depot stores. The EconoGreen Plastics(TM), products includes trash bags and drop cloths, designed to help consumers reduce environmental waste. These heavy duty bags are made from 100% recycled materials and are 100 percent oxo- degradable, allowing them to break down within two years after use while costing considerably less than traditional green plastic bags. "With EconoGreen Plastics(TM) now available at The Home Depot stores nationwide, environmentally conscious consumers across the U.S. have easier access to our complete line of plastic bags," said Cindy Sutton, vice president, Jig -A-World USA, Inc. "Now consumers have an affordable option for green bags that they can use throughout their home without paying a premium or sacrificing quality."
Participant Company Information
Company Name Jig-A-Loo World Inc. Involvement Type Target
Company Overview
Jig-A-Loo World Inc. is a privately held Canadian-based producer of JIG-A-LOO. JIG-A-LOO is an all-purpose, high performance silicone based lubricant that unlike any other lubricant contains no oil, grease, wax or detergent; is colorless and does not stain or drip.
Home Depot acquires BlackLocus
Deal Type Acquisition Deal Sub Type Majority Acquisition
Deal Status Completed Announced Date 2012-12-17
Deal in Brief
The Home Depot, Inc., a retailer of home improvement products, has acquired BlackLocus Inc., a developer of software products for online retailers. Both companies involved in the transaction are based in the US.
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Participant Company Information
Company Name BlackLocus Inc. Involvement Type Target
Company Overview
BlackLocus Inc. is a developer of software products for online retailers.
Home Depot Acquires Interline Brands for USD1.63 Billion
Deal Type Acquisition Deal Sub Type Majority Acquisition
Deal Status Completed Announced Date 2015-07-22
Deal in Brief
The Home Depot, Inc., a home improvement retailer, has acquired Interline Brands Inc., a distributor and direct marketer of b road- line maintenance, repair, and operations products, for a purchase consideration of USD1.63 billion payable in cash. Both companies involved in the transaction are based in the US. Goldman Sachs Capital Partners and P2 Capital Partners LLC are the shareholders of Interline Brands. Michael Grebe is the chairman and chief executive officer of Interline. Bank of America Merrill Lynch acted as financial adviser, while Cleary Gottlieb Steen & Hamilton LLP acted as legal adviser t o Home Depot. Goldman Sachs and Barclays acted as financial advisors and Fried, Frank, Harris, Shriver & Jacobson LLP acted as legal advisor to Interline Brands. Deal History: Announced: On July 22, 2015, The Home Depot entered into an agreement to acquire Interline Brands for a purchase consideration of USD1.63 billion payable in cash.
Participant Company Information
Company Name Interline Brands, Inc. Involvement Type Target
Company Overview
Interline Brands, Inc. (Interline Brands) is a distributor and direct marketer of maintenance and repair products. The company offers products such as plumbing products, lighting, electrical products, janitorial supplies, HVAC products, appliances, hardware, tools, pool supplies, paint and sundries, office products, hearth and chimney products, and propane. It also provides valves and fittings, water heaters, faucets, disposers, water connectors, toilet repair items, showerheads, light fixtures, locksets, ceiling fans, cleaning products, and others. The company markets products of various brands including Wilmar, AmSan, Barnett, Copperfield, Sexauer, Maintenance USA, Hardware Express, U.S. Lock, SunStar, Trayco, Leran, Cleansource, NCP and AF Lighting. It caters its products to institutional and commercial facility owners, property managers, service contractors, multifamily apartment owners, retailers and resellers. Interline Brands is headquartered in Jacksonville, Florida, the US.
Company Name Goldman Sachs Capital Partners
Involvement Type Vendor
Company Overview
Goldman Sachs Capital Partners is a private equity investment arm of Goldman Sachs Group, Inc. The firm invests in a range of industries in a variety of situations including leveraged buyouts, growth financings, natural resources, venture capital and distressed securities. The firm invests between a range of $200 million to $800 million in the companies operating in the cleantech, energy, technology, healthcare, and medical devices sectors.
Company Name P2 Capital Partners, LLC Involvement Type Vendor
Company Overview
P2 Capital Partners, LLC is a privately owned hedge fund sponsor. It employs private equity approach to investing in the public markets. P2 Capital was founded in 2006 and is based US.
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Home Depot acquires Red Beacon
Deal Type Acquisition Deal Sub Type 100% Acquisition
Deal Status Completed Announced Date 2012-01-20
Deal in Brief
The Home Depot Inc., a home improvement retailer, has acquired Red Beacon, Inc., an online home services platform connecting consumers with contractors for their home maintenance, repair and remodeling needs. Both companies involved in the transaction are based in the US. Following the transaction, Red beacon's leadership team will stay in place and will remain in San Mateo, California.
Participant Company Information
Company Name Red Beacon, Inc. Involvement Type Target
Company Overview
Red Beacon, Inc. is an online search directory that provides local business listings with ratings and reviews. The company of fers price quotes and profiles of businesses and professionals, as well as allows its users to book an appointment with them. Red Beacon was incorporated in 2008 and is based in San Mateo, California.
Home Depot Inc. agrees to acquire a majority stake in HomeWay
Deal Type Acquisition Deal Sub Type 100% Acquisition
Deal Status Announced Announced Date 2006-12-13
Deal in Brief
Home Depot Inc , a home improvement speciality retailer, on December 13, 2006 announced that it has signed a definitive agreement to acquire The Home Way, a China-based home improvement retail chain. The terms of the deal were not disclosed.
Participant Company Information
Company Name The Home Way Involvement Type Target
Company Overview
The Home Way is a home improvement retail chain.
The Home Depot partners with Penske Truck Leasing
Deal Type Partnership Deal Sub Type Co-Marketing
Deal Status Completed Announced Date 2011-04-04
Deal in Brief
The Home Depot, Inc., a home improvement retailer, has formed a partnership with Penske Truck Leasing Co., L.P., a transportation services company, to provide truck rentals at 400 Home Depot stores. Both the companies are based in the US. Presently, 19 Home Depot stores are offering Penske‟s rental trucks in the pilot. Under the agreement, both the companies will offer do-it-yourself (DIY) consumers truly unique convenient locations for truck rentals and all the related home products. The Penske rental program enables DIY consumers to pick up and drop off Penske‟s moving trucks at participating Home Depot locations as well as locations within Penske‟s existing network of truck rental agents and its company-operated locations.
Participant Company Information
Company Name Penske Truck Leasing Co., L.P. Involvement Type Target
Company Overview
Penske Truck Leasing Co., L.P. is a transportation services provider for commercial and consumer sector.
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Home Depot acquires U.S. Home Systems
Deal Type Acquisition Deal Sub Type 100% Acquisition
Deal Status Completed Announced Date 2012-08-07
Deal in Brief
The Home Depot, Inc., a retailer of home improvement products, has acquired U.S. Home Systems, Inc. (USHS), a designer and manufacturer of home improvement products, at a price of US$12.50 per share in cash. The purchase consideration for the transaction is approximately US$94.9 million. Both companies involved in the transaction are based in the US. The offer price represents a premium of 38% over USHS' closing price on August 6, 2012. Based on the offer price USHS is valued approximately US$93.38 million. USHS offers kitchen refacing products, bathroom refacing products, and kitchen remodeling services. Deal History: On August 7, 2012, The Home Depot entered into a definitive merger agreement to acquire USHS.
Participant Company Information
Company Name U.S. Home Systems, Inc. (Inactive)
Involvement Type Target
Company Overview
U.S. Home Systems, Inc. (U.S. Home Systems) is a retailer of home improvement products. It designs, manufactures, sells and installs custom specialty home improvement products. The company's products include cabinet refacing systems, drawer fronts, cabinet doors, drawer boxes, molding, space organizers, matching valances, slide-out shelving, lazy susans and countertops. It also offers bathroom refacing products, such as vanity cabinetry refacing, shower doors, acrylic tub liners and wall surround s, and other accessories. U.S. Home Systems provides home organization products including shelves, drawers, slot walls, hang rods and other accessories. It also offers kitchen replacement and remodeling services. U.S. Home Systems is headquartered in Lewisville, Texas, the US.
The Home Depot partners with Owens Corning
Deal Type Partnership Deal Sub Type Co-Marketing
Deal Status Completed Announced Date 2009-10-05
Deal in Brief
The Home Depot, Inc., a home improvement retailer, expanded its partnership with Owens Corning, a producer of residential and commercial building materials and glass fiber reinforcements, to sell owens corning‟s PINK fiberglass insulation in The Home Depot's stores. Under the partnership agreement, PINK fiberglass insulation will be sold in more than 2,200 of The Home Depot's stores across North America. The partnership will enable the Owens Corning to expand its business operations in North America.
Participant Company Information
Company Name Owens Corning Involvement Type Target
Company Overview
Owens Corning is a manufacturer of composite and building materials systems in the US. It manufactures, fabricates and sells glass fiber reinforcements in the form of mat, veil and fabrics. The company also offers residential and commercial building materials such as insulation materials including thermal and acoustical batts, loose fill insulation, foam sheathing and accessories. In addition, it offers roofing materials such as oxidized asphalt and roofing accessories. The company offers its products under various brand names such as Owens Corning, Pink Fiberglas, Cultured Stone, ProStone, Modulo Stone, ParMur and Langeo Stone. It has operations in the US, Europe, Asia-Pacific and Canada. Owens Corning is headquartered in Toledo, Ohio, US.
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13 The Home Depot, Inc. - Recent Developments The Home Depot announces first quarter results raises fiscal year 2016 guidance Date : 18 May 2016
The Home Depot,the world's largest home improvement retailer,reported sales of $22.8 billion for the first quarter of fiscal 2016, a 9.0 percent increase from the first quarter of fiscal 2015. Comparable store sales for the first quarter of fiscal 2016 were positive 6.5 percent, and comp sales for U.S. stores were positive 7.4 percent.
Net earnings for the first quarter of fiscal 2016 were $1.8 billion, or $1.44 per diluted share, compared with net earnings of $1.6 billion, or $1.21 per diluted share, in the same period of fiscal 2015. For the first quarter of fiscal 2016, diluted earnings per share increa sed 19.0 percent from the same period in the prior year.
"We were pleased with our stronger than expected start to the year, driven by solid execution and broad -based growth across the store," said Craig Menear, chairman, CEO and president. "This was made possible by our hard working associates and their continued dedication to our customers in a quarter marked by week-to-week demand spikes caused by weather variability."
Updated Fiscal 2016 Guidance
The Company raised its fiscal 2016 sales guidance and now expects sales will be up approximately 6.3 percent and comp sales will be up approximately 4.9 percent. The Company also raised its diluted earnings-per-share guidance for the year and now expects diluted earnings per share to grow approximately 14.8 percent from fiscal 2015 to $6.27.
The Home Depot will conduct a conference call today at 9 a.m. ET to discuss information included in this news release and rel ated matters. The conference call will be available in its entirety through a webcast and replay at earnings.homedepot.com.
At the end of the first quarter, the Company operated a total of 2,275 retail stores in all 50 states, the District of Columb ia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. The Company employs more than 385,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 50 0 index.
US retailers raise profit guidance Date : 18 May 2016
Home Depot boosted its sales and profit forecasts for the year on Tuesday after a stronger-than-expected first quarter. The US home improvements chain said it expected full-year sales to rise 6.3% compared with a previous estimate of 5.1%-6%.
Elsewhere, TJX, owner of TJ Maxx, also raised its profit forecast for the year ending January 2017 to $3.35-$3.42 per share from $3.29-$3.38.
Source: Daily Mail Financial Times, Page: 27
Conlumino’s Viewpoint: The Home Depot Q1 2016 results Date : 17 May 2016
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Good housing market helps to build sales
Home Depot has started its fiscal year with a strong set of numbers. These are undoubtedly helped by housing market activity, but they are also aided by the firm's omnichannel strategy which has helped it defend against the rise of Amazon.
After last week's dismal set of retail trading updates, Home Depot provides some much needed relief and also an indication of where consumers are spending their money. Although growth figures are slightly lower than the prior quarter, they remain robustly positive es pecially against fairly tough comparatives from the year before.
There are three main factors underpinning Home Depot's current run of success.
The first of these is the current state of the housing market. While the start of the year saw some fluctuations in housing s ales, transactions for both new and existing homes are up on last year and activity remains fairly strong. This helpful tailwind is boosting demand for home improvement: we know from our own data that home movers spend, on average, 43% more on home improvement that non -movers over the first two years after making a move. This bodes well for Home Depot as it means that it is making gains off both current mover activity as well as the past year's growth in housing transactions. Even if the housing market slows, Home Depot should still benefit from this filli p to spending for at least a year or more.
The second trend is omnichannel where we believe that Home Depot has made significant progress over the past few years. Inves tments in improving the in-store experience via location apps, producing finding services, and stock checking have made the in-store journey easier and more logical: something that has helped Home Depot build custom outside of hardcore home improvers. Online services, like reviews and videos have also proved useful in boosting the sales of products related to more complex projects. Finally, the extensive assortment online -- which is some 28 times larger than that found in a typical store -- has ensured that the Home Depot website has become the destination for many consumers. Looking ahead, we are positive about Home Depot's omnichannel process and believe that investments in terms of in-store fulfillment will help boost sales and allow for greater efficiencies.
The final piece of the growth jigsaw comes from the professional market, a segment Home Depot has be en courting for some time. Given that this group spends around $52 billion a year, its overtures are both prudent and lucrative. There is more work to do, but the acquisition of Interline Brands has given the company a strong platform on which to build up its professional business. Meanwhile, quicker delivery times via fulfilment from stores is a step that will build business with the time-sensitive trade customer.
Given the strong start to the year and the broadly positive underlying conditions Home Depot has raised its growth forecasts. We believe that a full fiscal uplift of 6.3% in total sales and 4.9% in underlying comparatives is attainable. There is a slight downside that economic growth may slip as we move nearer to the election, but even if this does occur its impact on home spending not should filter through until next year.
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The Home Depot receives 2016 ENERGY STAR Sustained Excellence Award Date : 29 Mar 2016
The U.S. Environmental Protection Agency (EPA) has recognized The Home Depot, the world's largest home improvement retailer, with a 2016 ENERGY STAR Partner of the Year – Sustained Excellence Award – for its continued leadership in offering the latest innovations in energy efficient products. In 2015, The Home Depot helped customers save nearly $701.6 million in annual utility costs, equaling a 4 million metric ton decrease in greenhouse gas emissions through the sale of ENERGY STAR certified products. The Home Depot offers more than 17,000 ENERGY STAR products in stores and online.
This is the ninth year the company has been recognized by EPA for its achievements.
In December 2015, The Home Depot also announced that it had exceeded 2015 sustainability goals, achieving a reduction of ener gy use in its stores by 30 percent over 2004 levels - a savings of more than 8 billion kilowatts over ten years. The original goal set in 2010 was to reduce energy use by 20 percent.
"We're constantly seeking new and innovative products that are energy efficient, enabling our customers to save in their hom es and businesses as we also reduce energy use in our stores," says Ron Jarvis, vice president of environmental for The Home Depot.
The company also continues to implement a number of sustainability enhancements to its stores each year including Energy Man agement Systems to control all store lighting and HVACs and a fuel cell program that provides up to 85 percent of the energy that eac h participating store needs to operate.
FAA proposes $52,000 civil penalty against The Home Depot for Alleged HazMat violations Date : 29 Mar 2016
The U.S Department of Transportation's Federal Aviation Administration (FAA) proposes a $52,000 civil penalty against The Hom e Depot, Inc., of Atlanta, Georgia, for allegedly violating the Hazardous Materials Regulations. The FAA alleges that on Oct. 3, 2014, The Home Depot offered a box containing 16 cans of spray paint, a flammable aerosol, to UPS for shipment by air from San Antonio, Texas, to Pleasant Prairie, Wis. A UPS employee in San Antonio discovered the shipment befo re it was loaded onto the aircraft.
The FAA alleges the shipments were not accompanied by papers indicating the hazardous nature of their contents and were not p roperly marked or labeled. The company also failed to provide required emergency response information with the shipment, the FAA alleges.
The Home Depot has 30 days from receipt of the FAA's enforcement letter to respond to the agency.
Source: Canadean
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14 Appendix
14.1 Methodology
Canadean company reports are based on a core set of research techniques which ensure the best possible level of quality
and accuracy of data. The key sources used include:
Company Websites
Company Annual Reports
SEC Filings
Press Releases
Proprietary Databases
Notes
Financial information of the company is taken from the most recently published annual reports or SEC filings
The financial and operational data reported for the company is as per the industry defined standards
Revenue converted to US$ at average annual conversion rate as of fiscal year end
14.2 The Home Depot, Inc. - Ratio Definitions
Capital Market Ratios
Capital Market Ratios measure investor response to owning a company's stock and also the cost of issuing stock.
Price/Earnings Ratio (P/E)
Price/Earnings (P/E) ratio is a measure of the price paid for a share relative to the annual income earned per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of income, so the stock is more expensive compared to one with lower P/E ratio. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. Price per share is as of previous business close, and EPS is from latest annual report.
Formula: Price per Share / Earnings per Share
Enterprise Value/Earnings before Interest, Tax, Depreciation & Amortization (EV/EBITDA)
Enterprise Value/EBITDA (EV/EBITDA) is a valuation multiple that is often used in parallel with, or as an alternative to, the P/E ratio. The main advantage of EV/EBITDA over the PE ratio is that it is unaffected by a company's capital structure. It compares the value of a business, free of debt, to earnings before interest. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report.
Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / (Net Income + Interest + Tax + Depreciation + Amortization)
Enterprise Value/Sales
Enterprise Value/Sales (EV/Sales) is a ratio that provides an idea of how much it costs to buy the company's sales. EV/Sales is seen as more accurate than Price/Sales because market capitalization does not take into account the amount of debt a company has, which needs to be paid back at some point. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report.
Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Sales
Enterprise Value/Operating Profit
Enterprise Value/Operating Profit measures the company's enterprise value to the operating profit. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report.
Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Operating Income
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Enterprise Value/Total Assets
Enterprise Value/Total Assets measures the company's enterprise value to the total assets. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report.
Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Total Assets
Dividend Yield
Dividend Yield shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock.
Formula: Annual Dividend per Share / Price per Share
Equity Ratios
These ratios are based on per share value.
Earnings per Share (EPS)
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.
Formula: Net Income / Weighted Average Shares
Dividend per Share
Dividend is the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Dividend Cover
Dividend cover is the ratio of company's earnings (net income) over the dividend paid to shareholders.
Formula: Earnings per share / Dividend per share
Book Value per Share
Book Value per Share measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly.
Formula: (Shareholders Equity - Preferred Equity) / Outstanding Shares
Cash Value per Share
Cash Value per Share is a measure of a company's cash (cash & equivalents on the balance sheet) that is determined by dividing cash & equivalents by the total shares outstanding.
Formula: Cash & equivalents / Outstanding Shares
Profitability Ratios
Profitability Ratios are used to assess a company's ability to generate earnings, based on revenues generated or resources used. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
Gross Margin
Gross margin is the amount of contribution to the business enterprise, after paying for direct- fixed and direct variable unit costs.
Formula: {(Revenue-Cost of revenue) / Revenue}*100
Operating Margin
Operating Margin is a ratio used to measure a company's pricing strategy and operating efficiency.
Formula: (Operating Income / Revenues) *100
Net Profit Margin
Net Profit Margin is the ratio of net profits to revenues for a company or business segment - that shows how much of each dollar earned by the company is translated into profits.
Formula: (Net Profit / Revenues) *100
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Profit Markup
Profit Markup measures the company's gross profitability, as compared to the cost of revenue.
Formula: Gross Income / Cost of Revenue
PBIT Margin (Profit Before Interest & Tax)
Profit Before Interest & Tax Margin shows the profitability of the company before interest expense & taxation.
Formula: {(Net Profit + Interest + Tax) / Revenue} *100
PBT Margin (Profit Before Tax)
Profit Before Tax Margin measures the pre-tax income over revenues.
Formula: {Income Before Tax / Revenues} *100
Return on Equity
Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners.
Formula: (Net Income / Shareholders Equity)*100
Return on Capital Employed
Return on Capital Employed is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings.
Formula: EBIT / (Total Assets – Current Liabilities)*100
Return on Assets
Return on Assets is an indicator of how profitable a company is relative to its total assets, the ratio measures how efficient management is at using its assets to generate earnings.
Formula: (Net Income / Total Assets)*100
Return on Fixed Assets
Return on Fixed Assets measures the company's profitability to its fixed assets (property, plant & equipment).
Formula: (Net Income / Fixed Assets) *100
Return on Working Capital
Return on Working Capital measures the company's profitability to its working capital.
Formula: (Net Income / Working Capital) *100
Cost Ratios
Cost ratios help to understand the costs the company is incurring as a percentage of sales.
Operating costs (% of Sales)
Operating costs as percentage of total revenues measures the operating costs that a company incurs compared to the revenues.
Formula: (Operating Expenses / Revenues) *100
Administration costs (% of Sales)
Administration costs as percentage of total revenue measures the selling, general and administrative expenses that a company incurs compared to the revenues.
Formula: (Administrative Expenses / Revenues) *100
Interest costs (% of Sales)
Interest costs as percentage of total revenues measures the interest expense that a company incurs compared to the revenues.
Formula: (Interest Expenses / Revenues) *100
Leverage Ratios
Leverage ratios are used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
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Debt to Equity Ratio
Debt to Equity Ratio is a measure of a company's financial leverage. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries tend to have a higher debt equity ratio.
Formula: Total Liabilities / Shareholders Equity
Debt to Capital Ratio
Debt to capital ratio gives an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This indicates to investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to- capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk.
Formula: {Total Debt / (Total assets - Current Liabilities)}
Interest Coverage Ratio
Interest Coverage Ratio is used to determine how easily a company can pay interest on outstanding debt, calculated as earnings before interest & tax by interest expense.
Formula: EBIT / Interest Expense
Liquidity Ratios
Liquidity ratios are used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.
Current Ratio
Current Ratio measures a company's ability to pay its short-term obligations. The ratio gives an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.
Formula: Current Assets / Current Liabilities
Quick Ratio
Quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets.
Formula: (Current Assets - Inventories) / Current Liabilities
Cash Ratio
Cash ratio is the most stringent and conservative of the three short-term liquidity ratio. It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities.
Formula: {(Cash & Bank Balance + Marketable Securities) / Current Liabilities)}
Efficiency Ratios
Efficiency ratios measure a company's effectiveness in various areas of its operations, essentially looking at maximizing its use of resources.
Fixed Asset Turnover
Fixed Asset Turnover ratio indicates how well the business is using its fixed assets to generate sales. A higher ratio indicates the business has less money tied up in fixed assets for each currency unit of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets.
Formula: Net Sales / Fixed Assets
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Asset Turnover
Asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue to the company. A higher asset turnover ratio shows that the company has been more effective in using its assets to generate revenues.
Formula: Net Sales / Total Assets
Current Asset Turnover
Current Asset Turnover indicates how efficiently the business uses its current assets to generate sales.
Formula: Net Sales / Current Assets
Inventory Turnover
Inventory Turnover ratio shows how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.
Formula: Cost of Goods Sold / Inventory
Working Capital Turnover
Working Capital Turnover is a measurement to compare the depletion of working capital to the generation of sales. This provides some useful information as to how effectively a company is using its working capital to generate sales.
Formula: Net Sales / Working Capital
Capital Employed Turnover
Capital employed turnover ratio measures the efficiency of a company's use of its equity in generating sales revenue to the company.
Formula: Net Sales / Shareholders Equity
Capex to sales
Capex to Sales ratio measures the company's expenditure (investments) on fixed and related assets' effectiveness when compared to the sales generated.
Formula: (Capital Expenditure / Sales) *100
Net income per Employee
Net income per Employee looks at a company's net income in relation to the number of employees they have. Ideally, a company wants a higher profit per employee possible, as it denotes higher productivity.
Formula: Net Income / No. of Employees
Revenue per Employee
Revenue per Employee measures the average revenue generated per employee of a company. This ratio is most useful when compared against other companies in the same industry. Generally, a company seeks the highest revenue per employee.
Formula: Revenue / No. of Employees
Efficiency Ratio
Efficiency Ratio is used to calculate a bank's efficiency. An increase means the company is losing a larger percentage of its income to expenses. If the efficiency ratio is getting lower, it is good for the bank and its shareholders.
Formula: Non-interest expense / Total Interest Income
Source : Canadean
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14.3 Disclaimer
All Rights Reserved
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Canadean.
The data and analysis within this report is driven by Canadean from its own primary and secondary research of public and
proprietary sources and does not necessarily represent the views of the company profiled.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the
findings, conclusions and recommendations that Canadean delivers will be based on information gathered in good faith fr om
both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Canadean can
accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
