Hechinger Co. and Home Depot are two home improvement retailers. Compared to Hechinger, founded in the early 1900s, Home Depot is a relative newcomer. But in recent years, while Home Depot was reporting large increases in net income, Hechinger was reporting increasingly large net losses. Finally, largely due to competition from Home Depot, Hechinger was forced to fi le for bankruptcy. Here are fi nancial data for both companies (in millions).

Hechinger Home Depot Cash $ 21 $ 62 Receivables 0 469 Total current assets 1,153 4,933 Beginning total assets 1,668 11,229 Ending total assets 1,577 13,465 Beginning current liabilities 935 2,456 Ending current liabilities 938 2,857 Beginning total liabilities 1,392 4,015 Ending total liabilities 1,339 4,716 Interest expense 67 37 Income tax expense 3 1,040 Cash provided (used) by operations (257) 1,917 Net income (93) 1,614 Net sales 3,444 30,219 Instructions Using the data provided, perform the following analysis.

(a) Calculate working capital and the current ratio for each company. Discuss their relative liquidity.

(b) Calculate the debt to assets ratio and times interest earned for each company. Discuss their relative solvency.

(c) Calculate the return on assets and profi t margin for each company. Comment on their relative profi tability.

(d) The notes to Home Depot’s fi nancial statements indicate that it leases many of its facilities using operating leases. If these assets had instead been purchased with debt, assets and liabilities would have increased by approximately $2,347 million. Calculate the company’s debt to assets ratio employing this adjustment. Discuss the implications.