...The Financial Analysis of The Home Depot By: The CPT Consulting Group 10-3-11 CPT Consulting Group Table of Contents I. Introduction II. Board of Directors and Corporate Governance III. WACC and Capital Structure IV. Degree of Operating leverage V. Dividends VI. Conclusions VII. Appendix I. Introduction The Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank. The home depot Inc., collectively with its subsidiaries, operates as a home improvement retailer. The company sells a wide variety of building materials, home improvement products, and lawn and garden products for the do-it-your-self customer, the do-it-for-me customer, and the professional customer. Today The Home Depot provides installation options for: carpeting, tile flooring, cabinets, water heaters, furnaces, and central air systems to name a few. The founders’ originally had a vision of a one stop shopping store for the do-it–your- self customer, and later went on to expand the business into the do-it-for-me customer. Mr. Marcus and Mr. Blank opened the first Home Depot store on June 22, 1979 in Atlanta, Georgia. In 1981, the company went public on NASDAQ and moved to the New York Stock Exchange (NYSE:HD) in 1984. The Home Depot, Inc. is the world's largest home improvement specialty retailer and the fourth largest retailer in the United States with fiscal 2010 retail sales of $68.0 billion and earnings from continuing operations of $3.3 billion...
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...Common sense dictates that a dollar today is worth more than a dollar in the future, as one could invest the dollar and earn interest on it. That statement has been implanted in the brains of all business students. Whether a person is a business professional or an investor, understanding the time value of money is critical when it pertains to financial decisions. In analyzing The Home Depot, Inc. as illustrated in Table 1, when discounting Home Depot’s free cash flows at 8% for fiscal years 2015 through 2018, the present values are $104.63MM, $95.16MM, $85.73MM, $74.24MM, and $66.02MM respectively and the total present value equals $425.78MM. Therefore, Home Depot’s $530MM total free cash flows is worth $425.78MM today. According to Michael...
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...Financial Statements Part Two Home Depot is a retailer that operates in the home improvement industry. The company sells building materials and home improvement products. Part Two of the Financial Statements paper will assess the financial statements of Home Depot to ascertain how effective the company’s management is in achieving its goals and mission statement to the stakeholder’s. The analysis will use vertical analysis, trend analysis, and ratio analysis to achieve to support the findings. A vertical analysis is a report that reports each amount on a financial statement as a percentage of another item. In performing the vertical analysis we need to look at the economic conditions of 2008. Mortgages started failing in the early months of 2008. Several guarantee’s of mortgage loans were placed under governmental conservatorship including Fannie Mae and Freddie Mac, which resulted in the U.S. Treasury Department supplying funds to help stabilize these companies, raising the national debt ceiling in the process (Money-Zine.com, 2011.) As a retail supplier of home improvement and home building materials, Home Depot was hit hard by the economic condition resulting in the company’s retail sales declining by 7.8 percent and its adjusted earnings per share declining by 22 percent in 2008. In the 2008 Home Depot Annual report, the company Chairman and the Chief Executive Officer, Francis S. Blake, advised that he viewed this year as not being a very ordinary year, with...
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...Report Analysis On Home Depot, Inc. DeVry University Intermediate Accounting Introduction Home Depot, Inc., founded in 1978 by Bernie Marcus and Arthur Blank, decided to team up with investment banker Ken Langone and merchandising guru Pat Farah ultimately became the visionaries for the one-stop-shop do-it-yourself store which today has become a very lucrative business bring the vision to fruition. The Home Depot is the world’s largest home improvement retailer based upon reported $4.5billion in net sales for the fiscal year 2012. Home Depot has more than 2,200 locations throughout the United States and now has expanded across the globe with stores located in territories of the U.S. Virgin Island, Guam, Canada, Puerto Rico, Mexico and reaching as far as China. Stores averaging 105,000 square feet with approximately 23,000 additional square feet outside garden area; inventory consist up to 40,000 different kinds of building materials, home improvement supplies and equipment to also include appliances along with lawn and garden products and equipment for just about every imaginable project need. Home Depot offers competitive prices with a guarantee they can beat anyone’s advertised specials. Among other offers, Home Depot offers home services such as contractor services, home services, free “how-to-clinics” and a free children’s “how-to-clinic” offering ideas that can range from simple to complex ideas. Report I Reporting and Auditors Financial statements...
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...Value Line Publishing, October 2002 1. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide? Complete and compare a similar analysis for Lowe’s. 2. How sensitive is return on capital to the forecast assumptions in case Exhibit 8? What independent changes in Carrie Galeotafiore’s estimates are required to drive the 2002 return-on-capital estimate below Home Depot’s cost-of-capital estimate of 12.3 percent? Look specifically at gross margin, cash operating expenses, receivable turnover, inventory turnover, and P&E turnover. What effect does sales growth have on return on capital? Explain your findings. 3. Do you agree with Galeotafiore’s forecast for Home Depot? How would you adjust it? 4. How would your forecast assumptions differ for Lowe’s? Complete and recommend a five-year Lowe’s forecast to Galeotafiore. 5. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide? Complete and compare a similar analysis for Lowe’s. 6. How sensitive is return on capital to the forecast assumptions in case Exhibit 8? What independent changes in Carrie Galeotafiore’s estimates are required to drive the 2002 return-on-capital estimate below Home Depot’s cost-of-capital estimate of 12.3 percent? Look specifically at gross margin, cash operating...
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...Home Depot vs. Lowe’s Retail Home Improvement Financial Analysis Background Introduction The home improvement sector of the economy is large with two major players in the industry and with many smaller local and regional competitors. These two major competitors are Home Depot and Lowe’s. These two companies account for over $110 billion in total sales each year. Even though sales have gone down over the past few years due to the downturn in the economy they have not gone down nearly as much as home sales and this is due to more people deciding to do more home improvements to their own home then buying a new home. Both of these companies have been able to keep up sales and increase them year over year by improving current stores and at the same time expanding both here in the United States and overseas. Company introduction Home Depot The Home Depot also known as Home Depot is a retailer of home improvement and construction products and services. The Home Depot was founded in 1978. The Home Depot operates 2,242 stores across the United States in all 50 U.S. states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. Sales within the United States were over $77 billion in 2010. The Home Depot also operates internationally in Canada, Mexico and China. Lowe’s Lowe's Companies, Inc. is a retail home improvement and appliance stores and also does construction. Lowe’s was founded in 1946 in North Wilkesboro, North Carolina. Lowe’s operates 1,710 stores...
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...The Home Depot Financial Management Project Company Financial Analysis For: Professor Ana Machuca Submitted by Team A: Betcher, Rhonda Cammack, Cheryl Desai, Shekhar Barnes, John Babatunde, Lasisi Adamson, Christopher Submission Date: February 26, 2012 TABLE OF CONTENTS EXECUTIVE SUMMARY: ...................................................................................... 3. COMPANY INTRODUCTION: ............................................................................... 5. FINANCIAL ANALYSIS: ......................................................................................... 8. WEIGHTED AVERAGE COST OF CAPTIAL (WACC): ........................................ 11. FUTURE CASH FLOWS: ...................................................................................... 16. HISTORICAL STOCK PRICE: .............................................................................. 22. SECURITY ANALYST’S REPORTS: .................................................................... 25. DIVIDEND and CAPITAL STRUCTURE: .............................................................. 26. CORPORATE GOVERNANCE: ............................................................................ 28. MERGER and INTERNATIONAL STRATEGY: .................................................... 29. REFERENCES: .....................................................................................................
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...his case follows the performance-review and financial-statement-forecasting decisions of a Value Line analyst for the retail-building-supply industry in October 2002. The case contrasts the strong operating performance of Home Depot with the strong stock-market performance of Lowe's. Students examine a financial-ratio analysis for Home Depot that acts as a template for generating a comparable ratio analysis for Lowe's. The student ratio analysis is designed to build intuition with respect to interpreting individual ratios as well as ratio interrelationships (e.g., the DuPont framework). The historical-performance comparison suggests that investors are skeptical of the ability of Home Depot to maintain its performance trajectory, yet they project sustained improvements for Lowe's. Students are invited to scrutinize the analyst's five-year income-statement and asset-side balance-sheet forecast for Home Depot. The case expressly focuses on the asset side of the balance sheet as a preview for other cases using free-cash-flow forecasting. The Home Depot forecast exercise exposes students to the mechanics of financial-statement modeling and sensitivity analysis, which they can use in building their own forecast for Lowe's. Finally, the strong-growth assumptions for Home Depot relative to the modest-growth forecast for the industry suggest that the company can be expected to capture massive and perhaps unreasonable market share in the near term. The exercise provides a striking example...
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...7/26/2014 Home Depot vs. Lowes As a recent home buyer, I know first-hand the importance and value of having a local home improvement store. Within the first 6 months as a property owner, I have spent numerous hours, visits and money buying the essentials to complete my home. I never thought of myself as a loyal customer to Home Depot (HD) vs. Lowes (LOW) but after researching the two competitors, I have found myself take pride and loyalty with Home Depot. In this report, I will provide you with a full analysis comparing and contrasting Home Depot and Lowes. My conclusions will yield that clearly there is a difference between both company’s values and strategies, but importantly, Home Depot is a stronger investment for the short-term and long-term. My recommendations will support holding stock with Home Depot or invest soon. Quantity: The Value of Market Share In America, “size of the US home improvement retail industry is approximately $129.2B by revenues, with Home Depot leading the market with a 58.9% share; together Home Depot and Lowe’s account for 97% of the market share by revenues,” stated by William Bias. The fact remains that brand recognition drives price. There is clearly brand recognition and more importantly, brand loyalty with Home Depot compared to Lowes. And where does the brand loyal derive from…Proximity. The humanity that dwells within us tends to migrate to common and frequent people and venues. We are creatures of habits and Home Depot has strategically...
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...A Strategic Analysis of Home Depot GM599 A Strategic Analysis of Home Depot Introduction The Home Depot (NYSE: HD) is a home improvement, construction products and services retailer operating over 2,000 big-box stores in the United States and abroad. The Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank with the vision of one-stop shopping for do-it-yourself (DIY) customers, installation services for do-it-for-me (DIFM) customers and competitive products for the professional market. Their DIFM installation programs include products such as carpeting, flooring, cabinets, countertops, and water heaters. In addition, the company provides installation of various professional products like generators and HVAC systems. The Home Depot developed strategic product alliances directly with industry-leading manufacturers to deliver the most exclusive assortments to customers. Through a combination of national brands and proprietary products The Home Depot exclusively carries several major brands, including: BEHR Paint, G.E., Martha Stewart Living and Thomasville, which sets the standard for the do-it-yourselfer and the professional contractor. The Home Depot revolutionized the home improvement industry by bringing the know-how and the tools to the consumer and by saving them money. According to the founders, the customer has a bill of rights at The Home Depot, and this entitles the customer to the right assortment, quantities and price, along with trained associates...
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...Carrie Galeotafiore, was put in charge of the company comparison and developed a comprehensive forecast model that could be used to gauge future success. Historical performance, costs of capital, current financial statements, and macroeconomic trends were all used in creating assumptive ratios and growth rates. With five year projected financials, Galeotafiore applied these projections to current company metrics in an effort to publish an accurate forecast. Before finalizing these projections, it is recommended that Value Line produce a detailed qualitative analysis to support the numbers. The purposes of this analysis are to 1) provide detailed forecast analysis for hardware giants Home Depot and Lowe’s. 2) compare these assumptions to the industries previous and potential performance 3) provide a judgment for Value Line readers for potential stock investment actions. Although these two companies have risen to the top of this industry it is recommended that investors hold their current investment position on both companies, as opposed to buy or sell. Problem Formulation As Galeotafiore prepares to release Value Line’s forecasts, there are several important factors that must be taken into consideration. Primarily, are the numbers used in the models for Home Depot, found in Exhibit 7, dependable? Can both companies be expected to achieve similar growth rates or has market saturation been reached? Next, is Galeotafiore properly accounting for macroeconomic trends?...
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...Company Overview Home Depot, Inc. (Home Depot) was, for the 2008 fiscal year ending in February 2009, the world’s largest home improvement retailer. It is known for its warehouse-style stores offering a wide range of building materials, appliances, and lawn and garden products. Home Depot serves three primary customer groups: Do-It-Yourself (DIY), Do-It-For-Me (DIFM), and Professionals, each of whom have different inventory and customer service needs. As of February, 2009, Home Depot had 1,971 stores in the U.S., including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam; 176 stores in Canada; 74 stores in Mexico and 12 stores in China. (Home Depot 2008 Annual Report, 2009). The Home Depot, like many large corporate entities, has found purpose in creating a mission statement to drive its future operations. The Home Depot website outlines the Company Mission Statement as follows: “The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are a values-driven company and our eight core values include the following: 1. Excellent customer service 2. Taking care of our people 3. Giving back 4. Doing the “right” thing 5. Creating shareholder value 6. Respect for all people 7. Entrepreneurial spirit (and) 8. Building strong relationships” Fiscal 2008 was a challenging year for the United States economy, and was particularly...
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...Group report The Home Depot, Inc. and Canadian Tire Corporation Financial Statement Analysis Part A Description of Retail Industry: Retail is the process of selling consumer goods and/or services to customers through multiple channels of distribution to earn a profit. Demand is created through diverse target markets and promotional tactics, satisfying consumers' wants and needs through a lean supply chain. In the 2000s, an increasing amount of retailing is done online using electronic payment and delivery via a courier or postal mail. Retailing includes subordinated services, such as delivery. The term "retailer" is also applied where a service provider services the small orders of a large number of individuals, rather than large orders of a small number of wholesale, corporate or government clientele. Shops may be on residential streets, streets with few or no houses, or in a shopping mall. Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or full roof to create a more comfortable shopping environment protecting customers from various types of weather conditions such as extreme temperatures, winds or precipitation. Online retailing, a type of electronic commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-shop retailing. Retail Industry competitive environment: Retail industry is a highly competitive industry. Recently, as technologies advances dramatically, traditional retailers have been transforming...
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...Dow 30 Case Table of Contents 1.1 Bordered Covariance Matrix 3 1.2 Determination of Target Return 3 1.3 Solver Parameter 4 1.4 Efficient Frontier Creation 4 1.5 Asset Weights 5 1.6 Weekly Rebalancing 6 1.7 Portfolio Calculations 6 2.0 Firm Analysis: Home Depot 7 2.1 Trends 7 2.2 Analysis of current Macro-economic conditions 8 3.0 Analysis of Return & Benchmark 8 4.0 Analysis of Porter’s Five Forces 10 4.1 Intensity of Competitive Rivalry 10 4.2 Threat of entry for new competition 10 4.3 Threat of Substitutes for Product & Services 11 4.4 Supplier Power 11 4.5 Buyer Power 11 4.6 Closing Remarks 11 5.0 P/E 12 6.0 Individual Company Analysis 12 6.1 Growth ratios: 13 6.2 Gross profit margin: 13 6.3 Financial Strength: 14 6.4 Efficiency ratios: 14 6.5 Management Effectiveness: 14 7.0 Dividend Discount Model Analysis 16 7.1 Calculations 17 7.2 Methodology & Result 17 8.0 Modeling: Free Cash Flow to Firm & Free Cash Flow to Equity 18 Appendix A 22 Appendix B 25 1.0 Asset Allocation Model 1.1 Bordered Covariance Matrix The chapter 7 in class spreadsheet model was a strong foundation that helped teach the group how to find an optimum portfolio. To create our portfolio model, a bordered covariance matrix and an efficient frontier was developed to find our minimum variance portfolio in the DOW 30 trading case. A screen shot of our model developed on October the 8th, 2010 is in the...
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...10-mar-2015 THE HOME DEPOT, INC. 1. Evaluate The Home Depot's growth strategy. The Home Depot innovated in the home center industry by bringing a new retailing concept. One of the most important decision was to cut out completely the warehouse costs by designing retailing stores in a warehouse format in which all the inventory was already at store. This format helped The Home Depot to keep Overhead costs low and as a consequence, past these savings to their customers. This practice also led The Home Depot to work with a higher volume, lower margin and higher inventory turnover, a good indicator for retail companies which in turn helped to reduce costs even more. Having the warehouse format also helped them minimize out-of-stock occurrences, which helped them to have a stronger relationship with the customer, to whom they offered guaranteed products, by either the manufacturer or themselves. Customer service was so important for The Home Depot that 90% of their employees were fulltime works with special trainings of technical knowledge to help their customers with home improvement projects, and their advertising program included in-store demonstration of do-it-yourself which helped the Home Depot grow successfully in its early years. 2. How well did the company implement its strategy? Analyze The HomeDepot's financial performance and cash flow during the fiscal year 1985. How well did the company perform in 1985 relative to the previous years? How does The Home Depot's performance...
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