a. Industry and Competitive Environment: Explanation: The Home Depot and Lowe's operate in the home improvement retail industry. This industry is characterized by strong competition from both large and small retailers. Economic factors affecting these companies include housing market trends, interest rates, and consumer spending. A strong housing market typically benefits these retailers. Main competitors include other home improvement retailers like Menard's, Ace Hardware, and regional players. The Home Depot and Lowe's are similar in that they both sell home improvement and construction products. They have a substantial retail presence across the United States. Differences may include store locations, store sizes, product offerings, and marketing strategies. b. Income Statement Analysis: Explanation: Examine both companies' income statements for unusual or nonrecurring items that could affect the quality and persistence of earnings. Assess whether earnings are of high quality and persistent by looking at trends over time. c. Common-Sized Statements: Explanation: Create common-sized income statements and balance sheets for both companies for 2013 and 2012. Compare the composition of balance sheets to identify similarities and differences. d. Return on Equity (ROE) Analysis: Explanation: Calculate ROE for both companies in 2013 and 2012. Decompose ROE into its five components: tax burden, interest burden, operating return on sales, asset turnover, and financial leverage. e. Trends in Expense Items and ROE Subcomponents: Explanation: Analyze trends in expense line items as a percentage of sales and ROE subcomponents for each firm over time. Determine which firm is more profitable based on overall ROE, operating return on sales, and operating return on assets. f. Asset Efficiency: Explanation: Assess asset efficiency through total asset turnover, receivables turnover, inventory turnover, payables turnover, and cash conversion cycle. Determine which firm is more efficient in its use of assets. g. Liquidity and Solvency: Explanation: Evaluate liquidity and solvency using ratios like current ratio, quick ratio, debt-to-assets ratio, and liabilities-to-equity ratio. h. Cash Flow Analysis: Explanation: Assess cash flows from operations to determine if they are a source or use of cash. Examine how operations and investments are being financed. Identify similarities and differences in cash flow patterns. i. Investor Perspective: Explanation: As a potential investor, consider seeking additional information about both companies, especially their growth strategies, competitive positioning, and future plans. Evaluate whether you would invest in either company based on your analysis of their financial health and performance. In conclusion, after conducting a comprehensive financial analysis of The Home Depot and Lowe's, several key observations can be made