Exercise 8-22 Ratio analysis; Home Depot and Lowes [LO8-7] Real World Financials

Question

Exercise 8-22 Ratio analysis; Home Depot and Lowes [LO8-7] Real World Financials The table below contains selected information from recent financial statements of The Home Depot, Inc., and Lowe's Companies, Inc two companies in the home improvement retail industry (S in millions): Home Depot Lowe' Net sales Cost of goods sold Year-end inventory 1/31/16 2/1/15 1/29/16 1/30/15 $78,967 $74,909 $53,572 $50, 676 51,577 48,947 29,050 33,229 11,212 10, 340 9,142 8,615 Industry Averages: Gross profit ratio Inventory turnover ratio Average days in inventory 3.9 times 94 days Required Calculate the gross profit ratio, the inventory turnover ratio, and the average days in inventory for the two companies for their fiscal years ending in 2016. (Use 365 days a year. Round "Inventory turnover ratio" to 2 decimal places. Enter dollar amounts in millions. Round the dollar answer values to the nearest whole dollars.) Rat Choose Numerator: I Choose Denominator: Gross Profit Ratio Gross profit ratio HOME DEPOT LOWE'S ntory Turnover Rat Choose Numerator: Choose Denominator: - Inventory Turnover Ratio Inventory turnover ratio HOME DEPOT LOWE'S Average Days in Inventory Choose Numerator:I Choose Denominator: Average Days in Inventory Average days in inventory - HOME DEPOT LOWE'S

Explanation / Answer

Gross Profit Ratio Choose Numerator / Choose Denominator = Gross Profit Ratio Gross Profit / Sales = Gross Profit Ratio Home Depot                     27,390.00 /                                  78,967.00 = 34.69% Lowe's                     24,522.00 /                                  53,572.00 = 45.77% Inventory Turnover Ratio Choose Numerator / Choose Denominator = Inventory Turnover Ratio Cost of Goods Sold / Average Inventory = Inventory Turnover Ratio Home Depot                     51,577.00 /                                  10,776.00 = 4.79 Times Lowe's                     29,050.00 /                                    8,878.50 = 3.27 Times Average Days in Inventory Choose Numerator / Choose Denominator = Average Days in Inventory 365 / Inventory Turnover Ratio = Average Days in Inventory Home Depot                                 365 /                                            4.79 = 76.26 Days Lowe's                                 365 /                                            3.27 = 111.55 Days Home Depot Lowe's Sales    78,967.00    53,572.00 Cost of Goods Sold    51,577.00    29,050.00 Gross Profit    27,390.00    24,522.00 Home Depot Lowe's Beginning Inventory    10,340.00      8,615.00 Ending Inventory    11,212.00      9,142.00 Average Inventory    10,776.00      8,878.50

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