Analysis and Interpretation of Return on Investment for Competitors

Balance sheets and income statements for The Home Depot, Inc., and Lowe?s Companies, Inc., follow. Refer to these financial statements to answer the requirements:

a. Compute return on equity (ROE), return on assets (ROA), and return on financial leverage

(ROFL) for each company in fiscal year 2017. Assume a tax rate of 35% for these years.

b. Disaggregate the ROA?s computed into profit margin (PM) and asset turnover (AT) components. Which of these factors drives ROA for each company?

c. Compute the gross profit margin (GPM) and operating expense-to-sales ratios for each company. How do these companies? profitability measures compare?

d. Compute the accounts receivable turnover (ART), inventory turnover (INVT), and property,plant, and equipment turnover (PPET) for each company. How do these companies? turnover measures compare?

e. Compare and evaluate these competitors? performance in 2017

Financial & Managerial Accountix + - - Cn Q Search or enter address Cambridge Business Publishers HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets ($ millions) 2017 2016 2017 2016 Assets Current assets: Cash and cash equivalents . . $ 3,595 $ 2,538 $ 588 558 102 100 Short-term investments Receivables, not. . . 1,952 2.029 Merchandise inventories. . . . . 12,748 12.549 11,393 10,458 Other current assets. 638 608 689 18,933 17,724 12,772 12,000 Total current assets . . . . . . . Net property and equipment. 22,075 21,914 19,721 19,949 1,082 Goodwill . . . . . . . 2.275 2.093 1.307 408 366 Long-term investments.. Other assets. . 1,246 1,235 1.083 1,011 Total assets $44.529 $42,966 $35,291 $34,408 Liabilities and shareholders' equity Current liabilities: Short-term debt and current maturities of long-term debt. . $ 2,761 $ 1,252 $ 1,431 $ 1,305 Accounts payable. 7.244 7.000 6.590 6.651 Accrued salaries and related ex 1,640 1,484 747 790 Deferred revenue . . 1,805 1.66 1.378 1,253 Income taxes payable. . . 25 Other current liabilities 2,69 2,703 1,950 1,975 Total current liabilities . . . . . . . . . . . . . 16,194 14,133 12,096 11,974 Long-term debt, excluding current maturities. 24,267 22,349 15,564 14,394 Deferred income taxes . . . . . 440 296 Other long-term liabilities 2,174 1,855 1.758 1,606 Total liabilities . .. . . . . . . . . . . . . 43,075 38,633 29.418 27,974 Total stockholders' equity . . 1,454 4,333 5,873 6,434 Total liabilities and shareholders' equity . $44,529 $42,966 $35,291 $34,408 HOME DEPOT, INC. LOWE'S COMPANIES Income Statements Income Statements ($ millions) 2017 2016 2017 2016 Net sales. . . . . . . .. ... . .. .. .. . . . .. ........... $100,904 $94,595 $68,619 $65,017 Cost of sales. . . . . . . . . . . .. 66,548 62,282 45,210 42,553 Gross profit. ... . .. .. 34,356 32,313 23,409 22,464 Operating expenses: Selling. general and administrative. 17.864 17,132 15,376 15,129 Depreciation and amortization . . . 1,811 1,754 1,447 1,489 Operating income . . . . . 14,681 13,427 6.586 5.846 Interest and other (income) expense: Interest and investment income . (74) (36) (16) (12) Interest expense. . . . . . .057 972 649 657 Loss on extinguishment Earnings before provision for income taxe 13,698 12,49 5,489 5,201 Provision for income taxes . .. 5.068 4,534 2,042 2,108 Net earnings . $ 8,630 $ 7,957 $ 3,447 $ 3,093