Analysis and Interpretation of Return on Investment for Competitors

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

• Compute return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL) for each company in 2017. Assume a tax rate of 35% for these years.
• Disaggregate the ROAs computed into profit margin (PM) and asset turnover (AT) components. Which of these factors drives ROA for each company?
• Compute the gross profit margin (GPM) and operating expense-to-sales ratios for each company. How do these companies profitability measures compare?
• 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?
• Compare and evaluate these competitors performance in 2017.

** Please include steps **

HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets ($ millions) 2017 2016 2017 2016 $ 3,595 $ 2,538 $ 588 $ Assets Current assets: Cash and cash equivalents Short-term investments Receivables, net... Merchandise inventories. Other current assets. 558 100 102 1,952 12,748 638 2,029 12,549 608 11,393 10,458 884 689 Total current assets Net property and equipment. Goodwill .... Long-term investments. Other assets.. 18,933 22,075 2,275 17,724 21,914 2,093 12,772 19,721 1,307 408 1,083 12,000 19,949 1,082 366 1,011 1,246 1,235 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. . Accounts payable... Accrued salaries and related expenses Deferred revenue .. Income taxes payable. Other current liabilities $ 2,761 7,244 1,640 1,805 54 2,690 $ 1,252 7,000 1,484 1,669 25 2,703 $ 1,431 6,590 747 1,378 $ 1,305 6,651 790 1,253 1,950 1,975 12,096 15,564 11,974 14,394 Total current liabilities. Long-term debt, excluding current maturities. Deferred income taxes Other long-term liabilities 16,194 24,267 440 2,174 14,133 22,349 296 1,855 1,758 1,606 Total liabilities ... Total stockholders' equity . . Total liabilities and shareholders' equity . . 43,075 1,454 38,633 4,333 29,418 5,873 $35,291 27,974 6,434 $44,529 $42,966 $34,408 HOME DEPOT, INC. Income Statements LOWES COMPANIES Income Statements ($ millions) 2017 2016 2017 2016 $100,904 66,548 $94,595 62,282 $68,619 45,210 $65,017 42,553 34,356 32,313 23,409 22,464 17,864 1,811 17,132 1,754 Net sales. Cost of sales. Gross profit. . Operating expenses: Selling, general and administrative.. Depreciation and amortization Operating income. Interest and other (income) expense: Interest and investment income Interest expense... Loss on extinguishment of debt Earnings before provision for income taxes.. Provision for income taxes. 15,376 1,447 6,586 15,129 1,489 14,681 13,427 5,846 (74) 1,057 0 (36) 972 0 (16) 649 464 (12) 657 13,698 5,068 12,491 4,534 5,489 2,042 5,201 2,108 Net earnings $ 8,630 $ 7,957 $ 3,447 $ 3,093