Home Depot Financial Analysis

1844 words 8 pages
HOME DEPOT INC.

(Note: all $ amounts are stated in millions)

PART 1

a) There are 3 years covered in the following primary comparative financial statements, namely fiscal years ended 1 February 2004, 2 February 2003 and 3 February 2002:
• Consolidated Statement of Earnings
• Statement of Stockholders Equity and Comprehensive Income
• Consolidated Statements of Cash Flows

There are 2 years covered in the Consolidated Balance Sheet, namely fiscal years ended 1 February 2004 and 2 February 2003.

All of the primary comparative financial statements were audited, namely the Consolidated Balance Sheet, the Consolidated Statement of Earnings, the Statement of Stockholders Equity and Comprehensive Income and the Consolidated Statements of
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However, these norms may be misleading as Home Depot may be converting their receivables and inventory into cash (as evidenced by the increase in the amount of cash and cash equivalents) at a quicker rate than their payables. Furthermore, ratios from similar companies and industry wide averages should also be considered. The decrease in the current ratio is due to changes in inventory levels, as the quick ratio has remained the same.

c) The company should also consider whether payments can be made timeously. The following should be calculated to determine both the ability to pay and the likely timing of payments:

• solvency ratio
• debt ratio
• interest cover
• debtors days/turnover
• inventory days/turnover
• creditor days
• operating cycle
• unused lines of credit

d) Memorandum regarding credit rating
To: Home Depot Management
From: Company X

We have assigned a credit rating to Home Depot of ‘B’ – Good. Although the company’s liquidity decreased marginally, you are still able to pay your debts as they become due. Home Depot has sufficient cash and cash equivalents on hand, and there has been an improvement in the cash conversion cycle. This has resulted in an increase in the amount of cash and cash equivalents in fiscal year 1 February 2004. Whilst there will be a strain on cash due to capex programs

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