Value Line Publishing
Value Line Publishing, October 2002 In Case Number 12, "Value Line Publishing, October 2002," Carrie Galeotafiore presents a five-year financial forecast that shows Home Depot in an positive light. It also prepares to do the same with an analysis of Lowe's. She supports the changes proposed by the new Home Depot CEO and that would play a role in improving Home Depot's financial health in the home center and building industry. Galeotafiore supports her by mentioning a number of sources that would help the growth of the two companies. She mentions the recent consolidation throughout the building industry with both Lowe's and Home Depot acquiring several smaller companies.
Lowe's and Home Depot have done well by going
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Considering the operating margin is calculated before taxes, it is a slim margin of revenue from production, as the companies are earning approximately 6 to 8 centers on the dollar, and after taxes and interest, it's amazing they managed to turn a profit. Galeotafiore's forecast for Home Depot in Exhibit 8 shows a favorable increase overall in the forecast, resulting in some more favorable results from the ratio analysis. The forecast results from an aggressive increase yearly in working capital, fixed assets, while depending on taxes remaining stable during the period of the forecast. Obviously, sales growth is going to show a favorable return over the period of the forecast. However the last few years Home Depot has not enjoyed this sort of favorable increase at such an aggressive rate, which begs the question whether Galeotafiore may have been too aggressive in her predictions. An analysis shows that the gross, the cash operating expenses, receivable turnover, inventory turnover, and P&E turnover all remain the same as previous years There is concern that Galeotafiore's analysis is overly positive, despite some concerns with Home Depot's operating structure, since it is aggressively opening stores, at a rate that in a mere decade Home Depot will have nearly quadrupled the number of stores it operates. While it certainly can increase sales, the amount of capital and