Question
(Analyzing the quality of earnings and sustainability of capital expenditures)Look up the statement of cash flows for both Home Depot and Lowes using Yahoo! Finance.
(Analyzing the quality of earnings and sustainability of capital expenditures)Look up the statement of cash flows for both Home Depot and Lowes using Yahoo! Finance.
a.Compute the quality of earnings ratio for both firms and all three years of data provided in the popup window:
| Home Depot | Lowes |
| ||||
| 2011 | 2012 | 2013 | 2011 | 2012 | 2013 | |
| Net Income | $3,338,000 | $3,883,000 | $4,535,000 | $2,010,000 | $1,839,000 | $1,959,000 |
| Cash Flow from Operations | $4,585,000 | $6,651,000 | $6,975,000 | $3,852,000 | $4,349,000 | $3,762,000 |
| Capital Expenditures (CAPEX) | $1,096,000 | $1,221,000 | $1,312,000 | $1,329,000 | $1,829,000 | $ |
.
b.Compare the quality of earnings ratio for the two firms. For which firm do you feel most comfortable about the reported earnings quality? Explain.
c.Compute the capital acquisitions ratios for the latest three years for both firms.
d.Compare Home Depot's and Lowes' abilities of using operating cash flow to finance their capital expenditures. Which firm has relied more on the capital markets?
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Financial Accounting Volume II
Authors: Mohamed Hanif, Amitabha Mukherjee
4th Edition
9387886239, 978-9387886230
