Selected financial data of two competittors, Home Depot and Lowe\'s are presente
ID: 2415100 • Letter: S
Question
Selected financial data of two competittors, Home Depot and Lowe's are presented here (All dollars are in millions). Suppose the data were taken from 2014 financial statement of each company.
Home Depot Lowe's
Income Statement Data for year
Net Sales $77,349 $48,283
Cost of goods sold 51,352 31,556
Selling and Administrative expenses 18,570 12,020
Interest expense 696 239
Other income 74 45
Income taxes 2,410 1,702
Net income $4,395 $2,809
Balance sheet Data (End of the year)
Current assets $14,674 $8,686
Non current assets 29,650 22,183
Total Assets $44,324 $30,869
Current liabilities $12,706 $7,751
Long-term liabilities $13,904 $7,020
Total Stockholder Equity 17,714 16,098
Total Liabilities and Stockholders Equity $44,324 $30,869
Net Cash provided by Operating activities $5,727 $4,347
Cash paid for Capital Expenditures $3,558 $4,010
Dividend paid $1,709 $428
Average Shares outstanding 1,849 1,481
Instructions
For each company compute these values and ratios
(a) working capital (b)Current ratio (Round to two decimal places) (c) Debt to assets ratio (d) Free Cash flow (e) Earning per share (f ) Compare liquidity, profitability and solvency of the two companies.
Explanation / Answer
Home Depot
Lowe's
a) Computation of Working Capital
Working Capital = Current Assets – Current Liabilities
Current Assets
$ 14,674
$ 8,686
Less: Current Liabilities
$ 12,706
$ 7,751
Working Capital
$ 1,968
$ 935
b) Computation of Current Ratio
Current Ratio = Current Asset/Current Liablities
Current Assets
$ 14,674
$ 8,686
Current Liabilities
$ 12,706
$ 7,751
Current Ratio (Current Asset/Current Liablities) (no.of times)
1.15
1.12
c) Computation of Debt to Asset Ratio
Debt to Asset Ratio = Total Debt/Total Asset
Total Debt (Current + Long term liabilities)
$ 26,610
$ 14,771
Total Assets
$ 44,324
$ 30,869
Debt to Asset Ratio ( Total Debt/Total Asset)
60%
48%
d) Free CashFlow
Free Cashflow = Net Cash generated out of operations
- (less) Cash paid for capital expenditures
Net Cash generated out of operations
$ 5,727
$ 4,347
Less: Cash paid for capital expenditures
$ 3,538
$ 4,010
Free CashFlow
$ 2,189
$ 337
e) Earning per Share
Earning Per Share = Net Income (Profit) / No. of Shares outstanding
Net Income (Profit)
$ 4,395
$ 2,809
No. of Shares outstanding
1,849
1,481
Earning per Share
$ 2.38
$ 1.90
f)Compare liquidity, profitability and solvency of the two companies.
Liquidity: Both Companies Current Ratio, which shows the liquidity position of the company to pay off its current liablities are lower compared to Standard Current Ratio of 1.5:1. Home Depot is slightly better ratio with 1.15:1 compared to Lowe's 1.12:1
Profitability: Both Companies Gross Profit to Sales and Net Profit to Sales are not in much variatioLowe's is slightly better Gross Profit Ratio and Net Profit Ratio of 34.64% and 5.82% in comparision to Home Depot's 33.61% and 5.68% respetively.
Solvency: Lowe's has lesser % of Debt to Asset Ratio of 48% compared to Home Depot's 60%. Lowe's is better solvency ratio compared to Home Depot.
Home Depot
Lowe's
a) Computation of Working Capital
Working Capital = Current Assets – Current Liabilities
Current Assets
$ 14,674
$ 8,686
Less: Current Liabilities
$ 12,706
$ 7,751
Working Capital
$ 1,968
$ 935
b) Computation of Current Ratio
Current Ratio = Current Asset/Current Liablities
Current Assets
$ 14,674
$ 8,686
Current Liabilities
$ 12,706
$ 7,751
Current Ratio (Current Asset/Current Liablities) (no.of times)
1.15
1.12
c) Computation of Debt to Asset Ratio
Debt to Asset Ratio = Total Debt/Total Asset
Total Debt (Current + Long term liabilities)
$ 26,610
$ 14,771
Total Assets
$ 44,324
$ 30,869
Debt to Asset Ratio ( Total Debt/Total Asset)
60%
48%
d) Free CashFlow
Free Cashflow = Net Cash generated out of operations
- (less) Cash paid for capital expenditures
Net Cash generated out of operations
$ 5,727
$ 4,347
Less: Cash paid for capital expenditures
$ 3,538
$ 4,010
Free CashFlow
$ 2,189
$ 337
e) Earning per Share
Earning Per Share = Net Income (Profit) / No. of Shares outstanding
Net Income (Profit)
$ 4,395
$ 2,809
No. of Shares outstanding
1,849
1,481
Earning per Share
$ 2.38
$ 1.90
f)Compare liquidity, profitability and solvency of the two companies.
Liquidity: Both Companies Current Ratio, which shows the liquidity position of the company to pay off its current liablities are lower compared to Standard Current Ratio of 1.5:1. Home Depot is slightly better ratio with 1.15:1 compared to Lowe's 1.12:1
Profitability: Both Companies Gross Profit to Sales and Net Profit to Sales are not in much variatioLowe's is slightly better Gross Profit Ratio and Net Profit Ratio of 34.64% and 5.82% in comparision to Home Depot's 33.61% and 5.68% respetively.
Solvency: Lowe's has lesser % of Debt to Asset Ratio of 48% compared to Home Depot's 60%. Lowe's is better solvency ratio compared to Home Depot.
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