For this component of the project, you are asked to analysis of financial ratios for Lowe's, both through time and relative to financial ratios for Home Depot, using both tables and graphs.

To complete the through-time analysis, Please see attached financial data for Lowes. Calculate the financial ratios for each year and present these ratios in a table format... Discuss each ratio with respect to how it has adjusted across time and explain what conclusions you generate from each.

To complete the relative analysis, use the attached financial data for competing firm - Home Depot. Calculate the financial ratios for each company and present these ratios in a table format.. Discuss each ratio with respect to how the Lowe's ratio differs from the competing firm and what conclusions you generate from each. Note: If you compare your company's data with more than one competing firm, present each firm's ratios plus an average ratio of the competing firm collectively. The Financial Ratios Analysis Example, located in the Resources, using Home Depot data provides guidance on how to proceed. A summary of the basic data needed for this project has been provided.

TIPS

Do only the ratios listed in the Ratios tab.

Five: For computing the Break-even point, compute it in number of tickets. A ticket is the amount of an average sale, whether the sale is for one item or twenty items. (This will be asked for later)

The average number of tickets and the average revenue per ticket is already computed for you in the Project Data tab. To get the variable cost per ticket, consider the cost of goods sold to be the only variable cost. Compute the ratio of cost of goods sold to sales.

Home Depot Income Statements 1/29/2006 1/30/2005 81,511 54,191 27,320 73,094 48,664 24,430 16,485 1,472 17,957 9,363 15,256 1,248 16,504 7,926 62 -143 -81 9,282 3,444 5,838 56 -70 -14 7,912 2,911 5,001 Weighted average common shares Basic earnings per share Diluted weighted average common shares Diluted earnings per share 2,138 2.73 2,147 2.72 2,207 2.27 2,216 2.26 Number of stores Capital expenditures Square feet Number of customer transactions Average ticket 2,042 3,881 215 1,330 57.98 1,890 3,948 201 1,295 54.89 0.45 40 0.265 40.41 Sales Cost of goods sold Gross profit Operating expenses Selling, general and administrative Depreciation and amortization Total operating expenses Operating income Interest income (expense) Interest and investment income Interest expense Interest, net Earnings before taxes Provision for income taxes Net income Annual dividends Stock price Home Depot Balance Sheets 1/29/2006 1/30/2005 2/1/2004 Assets Current assets Cash and cash equivalents Short term investments Receivables, net Merchandise inventory Other current assets Total current assets 793 14 2,396 11,401 742 15,346 506 1,659 1,499 10,076 533 14,273 1,103 1,749 1,097 9,076 303 13,328 Property and equipment, at cost Land Buildings Furniture, fixtures and equipment Leasehold improvements Construction in progress Capital leases Gross property and equipment Less accumulated depreciation and amortization Net property and equipment 7,924 14,056 7,073 1,207 843 427 31,530 6,629 24,901 6,932 12,325 6,195 1,191 1,404 390 28,437 5,711 22,726 6,397 10,920 5,163 942 820 352 24,594 4,531 20,063 Notes receivable Cost in excess of fair value acquired Other assets Total assets 348 3,286 601 44,482 369 1,394 258 39,020 84 833 129 34,437 Liabilities and Shareholders' Equity Current liabilities Short term debt Accounts payable Accrued salaries and related expenses Sales taxes payable Deferred revenue Income taxes payable Current installment of long term debt Other accrued expenses Total current liabilities 900 6,032 1,176 488 1,757 388 513 1,647 12,901 0 5,766 1,055 412 1,546 161 11 1,504 10,455 0 5,159 801 419 1,281 175 509 1,210 9,554 Long term debt - excluding current Other long term liabilities Deferred income taxes Total liabilities 2,672 977 1,023 17,573 2,148 871 1,388 14,862 856 653 967 12,030 120 7,287 28,943 409 -138 119 6,650 23,962 227 -108 119 6,184 19,680 90 -76 -9,712 26,909 -6,692 24,158 -3,590 22,407 Stockholders' Equity Common stock (par=0.05, authorized: 10,000; issued 2,401 as of 1/29/06, 2385 as of 1/30/05; outstanding 2,124 as of 1/29/06, 2,185 as of 1/30/05) Paid in capital Retained earnings Accumulated other income Unearned compensation Treasury stock, at cost (277 shares at 1/29/06 200 shares at 1/30/05) Total Stockholders' Equity Total liabilities and stockholders' equity 44,482 39,020 34,437 Financial Ratios Analysis Example Home Depot Basis 73,094 Income Statements 1/29/2006 Sales Cost of goods sold Gross profit Operating expenses Selling, general and administrative Depreciation and amortization Total operating expenses Operating income Interest income (expense) Interest and investment income Interest expense Interest, net Earnings before taxes Provision for income taxes Net income 1/30/2005 100.00% 66.58% 33.42% (Gross profit rate or percentage ratio) 20.87% 1.71% 22.58% 10.84% 0.08% -0.10% -0.02% 10.82% 3.98% 6.84% (Return on sales ratio) The common size income statement shows each income as a percentage of the total sales revenue. This analysis size effects by examing the ratios which allow you to com company expenses across years without the effects of th from sales revenue moving up and down through time. F CGS% shows that for each $1 in sales revenue, $0.6658 CGS expense. If the company can reduce this percentage then it will result in an improved Gross profit, operating income. Home Depot Basis 39,020 Balance Sheets 1/29/2006 1/30/2005 Assets Current assets Cash and cash equivalents Short term investments Receivables, net Merchandise inventory Other current assets Total current assets 1.30% 4.25% 3.84% 25.82% 1.37% 36.58% Property and equipment, at cost Land Buildings Furniture, fixtures and equipment Leasehold improvements Construction in progress Capital leases Gross property and equipment Less accumulated depreciation and amortization Net property and equipment 17.77% 31.59% 15.88% 3.05% 3.60% 1.00% 72.88% 14.64% 58.24% Notes receivable Cost in excess of fair value acquired Other assets Total assets 2/1/2004 The common size bal a percentage of the t for a comparison acr size that fluctuate ac the mix of assets tha shareholder equity p sources. For exampl short term or curren funded by 38.09% lia stockholders' equity. 0.95% 3.57% 0.66% 100.00% Liabilities and Shareholders' Equity Current liabilities Short term debt Accounts payable Accrued salaries and related expenses Sales taxes payable Deferred revenue Income taxes payable Current installment of long term debt Other accrued expenses Total current liabilities 0.00% 14.78% 2.70% 1.06% 3.96% 0.41% 0.03% 3.85% 26.79% Long term debt - excluding current Other long term liabilities Deferred income taxes Total liabilities 5.50% 2.23% 3.56% 38.09% (Total debt to assets ratio) Stockholders' Equity Common stock (par=0.05, authorized: 10,000; issued 2,401 as of 1/29/06, 2385 as of 1/30/05; outstanding 2,124 as of 1/29/06, 2,185 as of 1/30/05) Paid in capital Retained earnings Accumulated other income Unearned compensation Treasury stock, at cost (277 shares at 1/29/06 200 shares at 1/30/05) Total Stockholders' Equity 0.30% 17.04% 61.41% 0.58% -0.28% -17.15% 61.91% Total liabilities and stockholders' equity 100.00% Home Depot (Ratios in BOLD are additions to those discussed in Chapter 17) Financial Ratios 1/29/2006 1/30/2005 Short term ratios Current ratio 1.37 Average collection period in days 6.48 Inventory turnover 5.08 Inventory days Total asset turnover 71.82 1.9901 Debt-to-equity ratios Total debt to equity 61.52% Total debt to assets 38.09% Equity multiplier (using averages) 1.5775 Profitability ratios Gross profit rate or percentage Return on sales 2/1/2004 The current ratio measures the (current assets). However, wh The average collection period m it takes (on average) to collect The inventory turnover measur indicates too little inventory w days (on average) that invento The total asset turnover measu means a stronger ability to gen The debt to equity ratio measu funding will tend to support fir problems due to the contractua total debt funding as a percent levels of debt. The equity mult 33.42% The gross profit rate shows the measure. The better the firm is at contro 6.84% The return on sales shows the controlling all expenses, the hi Return on assets 13.62% Return on stockholders' equity 21.48% The return on assets measures assets are funded. The return turnover (a revenue creation ra Decomposition of return on stockholders' equity Return on stockholders' equity Return on assets Equity multiplier (using averages) 21.48% 13.62% 1.5775 Return on stockholders' equity Return on sales Total asset turnover Equity multiplier 21.48% 6.84% 1.9901 1.5775 The return on stockholders' eq stockholders have historically 1. First, the ratio can be decom 2. Second, the ratio can be dec second decompositon is especially u be the driver. 1. If the cause of the ROE fo 2. If the cause of the ROE fo 3. If the cause of the ROE fo Valuation ratios Shares Outstanding Earnings per share 2,207 2.27 Stock Price per share 40.41 (from www.bigcharts.com) Price earnings 17.83 Dividend ratios Annual dividend Dividend yield 0.265 0.66% The price earnings ratio measu strong market pricing relative t strengthen. An existing stockh purchasing the stock would like firm. In this case, the potentia strong appreciation in the futu Dividend payout 11.69% Professional Challenge Data Lowe's Income Statements Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income Additional Metrics Number of Stores Square Footage Number of Employees Average ticket price for customers Shares outstanding LT Assets Land Building Equipment Estimated cost for one store Net working capital for one store Tom Steiner Consulting ### ### ### ### 1/28/2005 36,464 24,208 12,256 1/30/2004 30,838 21,269 9,569 1/31/2003 26,112 18,164 7948 ### # # # ### ### ### ### ### ### 7,562 123 859 176 8,720 3,536 1,360 2,176 0 2,176 5,578 128 739 180 6,625 2,944 1,115 1,829 15 1,844 4,625 129 640 182 5,576 2,372 893 1,479 12 1,491 ### # ### ### # 1,087 124 161,964 63.43 774 952 109 147,052 59.21 787 828 95 120,692 56.80 782 ### ### ### ### ### 4,197 7,007 5,405 19.77 1.15 3,635 5,950 4,355 16.55 2.44 3,133 5,092 3,663 Page 1 06/03/2017 Lowe's Balance Sheet ### 1/28/2005 1/30/2004 1/31/2003 Assets Current Assets Cash & Equivalents ST Investments Accounts Receivables Merchandise Inventory Def Inc Taxes Other CA Total current assets Net PPE LT Investments Other Assets ### ### # ### ### ### ### ### ### ### 530 283 9 5,911 95 75 6,903 13,911 146 178 1,446 178 131 4,584 59 289 6,687 11,945 169 241 853 273 172 3,968 58 244 5,568 10,352 29 160 Total Assets ### 21,138 19,042 16,109 ## # ### ## ### ### ### ### ### ### ### ### ### ### 0 630 2,695 0 386 467 539 931 5,648 3,060 736 159 9,603 11,535 0 77 2,366 74 335 0 0 1,516 4,368 3,678 657 30 8,733 10,309 50 29 1,943 88 306 0 0 1,162 3,578 3,736 478 15 7,807 8,302 Total Liabilities and Shareholder Equities ### 21,138 19,042 16,109 Liabilities and Shareholder Equity Current Liabilities Short term borrowings Current LT Debt Accounts Payable Employee retirement plans Accrued salaries and wages Self Insurance liability Def Revenue Other current liabilities Total current liabilities LTD Def Inc Taxes Other LT Liab Total Liabilities Total Shareholder Equity Tom Steiner Consulting Page 2 06/03/2017 Home Depot, Inc. 01/29/2006 01/30/2005 02/01/2004 Us USdollars dollars US dollars Cash ### 506,000 2,826,000 Marketable securities ### 1,659,000 26,000 Receivables ### 1,499,000 1,097,000 Inventories ### 10,076,000 9,076,000 Raw materials ## 0 0 Work in progress ## 0 0 Finished goods ### 10,076,000 9,076,000 Notes receivable ## 0 0 Other current assets & prepaid expenses ### 533,000 303,000 Total current assets ### 14,273,000 13,328,000 Property, plant & equipment ### 28,437,000 24,594,000 Accumulated depreciation ### 5,711,000 4,531,000 Net property, plant & equipment ### 22,726,000 20,063,000 Investments & advances to subsidiaries ## 0 0 Other non-current assets ### 369,000 84,000 Deferred charges & income ## 0 0 Intangibles ### 1,412,000 833,000 Deposits & other assets ### 240,000 129,000 Total assets ### 39,020,000 34,437,000 Notes payable Accounts payable Current long term debt Current portion of cap leases Accrued expenses Income taxes Other current liabilities Total current liabilities Mortgages Deferred charges/income Convertible debt Long term debt Non-current capital leases Other long term liabilities Total liabilities Minority interest (liabilities) Other liabilities Shareholder Equity Total liabilities & net worth Tom Steiner Consulting 01/29/2006 01/30/2005 Us dollars US dollars ### 0 ### 5,766,000 ### 1,000 ### 10,000 ### 2,971,000 ### 161,000 ### 1,546,000 ### 10,455,000 ## 0 ### 1,388,000 ## 0 ### 1,807,000 ### 341,000 ### 871,000 ### 14,862,000 ## 0 ### 119,000 ### 24,039,000 ### 39,020,000 Page 3 02/01/2004 US dollars 0 5,159,000 502,000 7,000 2,430,000 175,000 1,281,000 9,554,000 0 967,000 0 545,000 311,000 653,000 12,030,000 0 14,000 22,393,000 34,437,000 06/03/2017 Home Depot, Inc. 01/29/2006 01/30/2005 Us dollars US dollars Net sales ### 73,094,000 Cost of goods ### 48,664,000 Gross profit ### 24,430,000 R & D expenditures ## 0 Sell, general & admin expenses ### 16,504,000 Income before depreciation & amortization### 7,926,000 Depreciation & amortization ## 0 Non-operating income/expense ### 56,000 Interest expense ### 70,000 Income before tax ### 7,912,000 Provision for income taxes ### 2,911,000 Minority interest ## 0 Investments gains/losses ## 0 Other income ## 0 Net income before extra items ### 5,001,000 Extra items & discontinued ops ## 0 Net income ### 5,001,000 Tom Steiner Consulting Page 4 02/01/2004 US dollars 64,816,000 44,236,000 20,580,000 0 13,734,000 6,846,000 0 59,000 62,000 6,843,000 2,539,000 0 0 0 4,304,000 0 4,304,000 06/03/2017 Ratio Analysis Performance Ratios ROE ROA PM ROE Decomposition PM TAT EM Lowe's Lowe's Home Depot ( 2 / 3 / 2 0 0 6 )(1/28/2005) 1/30/2004) (1/31/2003) (1/29/2006) ### ### ### ### ### ### Asset Management Inventory Turnover Inventory Days Average Collection Period Total Asset Turnover ### ### ### ### Liquidity Ratios Current Ratio Quick Ratio ### ### Debt Ratios Debt Ratio Equity Multiplier ### ### Tom Steiner Consulting Lowes Lowe's Page 5 06/03/2017 Home Lowe's Lowe's Depot (2/3/06) (1/28/05) (1/29/06) ROE PM TAT EM 10 9 8 7 6 5 4 3 2 1 0 Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) ROE 10 9 8 7 6 5 4 3 2 1 0 Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) PM 10 9 8 7 6 5 4 3 2 1 0 Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) TAT 10 9 8 7 6 5 4 3 2 1 0 Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) EM Tom Steiner Consulting Page 6 06/03/2017 Breakeven Analysis ### 1/28/2005 1/30/2004 1/31/2003 Cost Type Stores Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 1,087 33.5455 22.2705 11.2751 0.0000 6.9568 0.1132 0.7902 0.1619 8.0221 3.2530 1.2511 2.0018 0.0000 2.0018 952 32.3929 22.3414 10.0515 0.0000 5.8592 0.1345 0.7763 0.1891 6.9590 3.0924 1.1712 1.9212 0.0158 1.9370 Average ticket price per transaction (P) Transactions per store (Q) - millions Variable expenses per transaction (VC) Fixed expenses (FC) Break Even Sales Customer Transactions ## 63.43 59.21 56.80 ### 0.52885919 0.54708423 0.48289738 ### ### Lowes 828 27.4286 19.0798 8.3487 0.0000 4.8582 0.1355 0.6723 0.1912 5.8571 2.4916 0.9380 1.5536 0.0126 1.5662 Calculate Tom Steiner Consulting Page 7 ### ### 06/03/2017 Graphical Breakeven Analysis Breakeven Analysis for Sales Unit Sales Sales 0.3000 0.3250 0.3500 0.3750 0.4000 0.4250 0.4500 0.4750 0.5000 Variable Fixed Total Expenses Expenses Expenses Breakeven Sales Level Sales Variable Expenses Fixed Expenses Total Expenses 12 10 8 6 4 2 0 0.3000 0.3250 0.3500 0.3750 0.4000 0.4250 0.4500 0.4750 0.5000 Units (millions) Tom Steiner Consulting Page 8 06/03/2017 Budget for a Lowe's Store Plan for 2005 Actual for 2005 Variance Lowe's Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income Tom Steiner Consulting Page 9 06/03/2017 Capital Budgeting Model Assumptions 2004 Percentage of sales 2004 2003 Growth in Sales Stores Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income Estimated cost for one store Net working capital for one store Total cost for one store LT Growth assumption WACC NPV PV Inflows PV Outflows 2% 9.5% Estimation of Cash Flows 2005 2006 2007 2008 2009 Sales CGS SG&A Depreciation OCF Additional Cap NWC Additional NWC FCF V2009 Develop WACC 0.095 Valuation of Cash Flows 2005 2006 2007 2008 2009 Present Value of Inflows Present Value of Outflows NPV Tom Steiner Consulting Page 10 06/03/2017 Sensitivity Analysis on Capital Budgeting Model PV PV inflows outflows Value and Cost Sales growth (same store) Sensitivity of Project Value on Sales Growth PV inflows PV outflows 12 10 8 6 4 2 0 Sales Growth (same store) PV PV inflows outflows Value and Cost CGS % Sensitivity of Project Value on CGS % PV inflows PV outflows 12 10 8 6 4 2 0 CGS % Tom Steiner Consulting Page 11 06/03/2017 Professional Challenge Data Lowe's Income Statements 2/3/2006 43,243 28,443 14,800 1/28/2005 36,464 24,208 12,256 1/30/2004 30,838 21,269 9,569 1/31/2003 26,112 18,164 7948 9,014 142 980 158 10,294 4,506 1,735 2,771 0 2,771 7,562 123 859 176 8,720 3,536 1,360 2,176 0 2,176 5,578 128 739 180 6,625 2,944 1,115 1,829 15 1,844 4,625 129 640 182 5,576 2,372 893 1,479 12 1,491 1,234 140 185,314 67.67 784 1,087 124 161,964 63.43 774 952 109 147,052 59.21 787 828 95 120,692 56.80 782 4,894 8,195 6,468 20.0544218 1.61993517 4,197 7,007 5,405 19.77 1.15 3,635 5,950 4,355 16.55 2.44 3,133 5,092 3,663 Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income Additional Metrics Number of Stores Square Footage Number of Employees Average ticket price for customers Shares outstanding LT Assets Land Building Equipment Estimated cost for one store Net working capital for one store Tom Steiner Consulting Page 1 06/04/2017 Lowe's Balance Sheet 2/3/2006 1/28/2005 1/30/2004 1/31/2003 Assets Current Assets Cash & Equivalents ST Investments Accounts Receivables Merchandise Inventory Def Inc Taxes Other CA Total current assets Net PPE LT Investments Other Assets 423 453 18 6,706 127 104 7,831 16,354 294 203 530 283 9 5,911 95 75 6,903 13,911 146 178 1,446 178 131 4,584 59 289 6,687 11,945 169 241 853 273 172 3,968 58 244 5,568 10,352 29 160 Total Assets 24,682 21,138 19,042 16,109 0 32 2,832 0 424 571 709 1,264 5,832 3,499 735 277 10,343 14,339 0 630 2,695 0 386 467 539 931 5,648 3,060 736 159 9,603 11,535 0 77 2,366 74 335 0 0 1,516 4,368 3,678 657 30 8,733 10,309 50 29 1,943 88 306 0 0 1,162 3,578 3,736 478 15 7,807 8,302 24,682 21,138 19,042 16,109 Liabilities and Shareholder Equity Current Liabilities Short term borrowings Current LT Debt Accounts Payable Employee retirement plans Accrued salaries and wages Self Insurance liability Def Revenue Other current liabilities Total current liabilities LTD Def Inc Taxes Other LT Liab Total Liabilities Total Shareholder Equity Total Liabilities and Shareholder Equities Tom Steiner Consulting Page 2 06/04/2017 Home Depot, Inc. Cash Marketable securities Receivables Inventories Raw materials Work in progress Finished goods Notes receivable Other current assets & prepaid expenses Total current assets Property, plant & equipment Accumulated depreciation Net property, plant & equipment Investments & advances to subsidiaries Other non-current assets Deferred charges & income Intangibles Deposits & other assets Total assets 01/29/2006 01/30/2005 02/01/2004 Us dollars US dollars US dollars 793,000 506,000 2,826,000 14,000 1,659,000 26,000 2,396,000 1,499,000 1,097,000 11,401,000 10,076,000 9,076,000 0 0 0 0 0 0 11,401,000 10,076,000 9,076,000 0 0 0 742,000 533,000 303,000 15,346,000 14,273,000 13,328,000 31,530,000 28,437,000 24,594,000 6,629,000 5,711,000 4,531,000 24,901,000 22,726,000 20,063,000 0 0 0 348,000 369,000 84,000 0 0 0 3,684,000 1,412,000 833,000 203,000 240,000 129,000 44,482,000 39,020,000 34,437,000 Notes payable Accounts payable Current long term debt Current portion of cap leases Accrued expenses Income taxes Other current liabilities Total current liabilities Mortgages Deferred charges/income Convertible debt Long term debt Non-current capital leases Other long term liabilities Total liabilities Minority interest (liabilities) Other liabilities Shareholder Equity Total liabilities & net worth 01/29/2006 Us dollars 900,000 6,032,000 441,000 72,000 3,311,000 388,000 1,757,000 12,901,000 0 1,023,000 0 2,363,000 309,000 977,000 17,573,000 0 271,000 26,638,000 44,482,000 Tom Steiner Consulting Page 3 01/30/2005 US dollars 0 5,766,000 1,000 10,000 2,971,000 161,000 1,546,000 10,455,000 0 1,388,000 0 1,807,000 341,000 871,000 14,862,000 0 119,000 24,039,000 39,020,000 02/01/2004 US dollars 0 5,159,000 502,000 7,000 2,430,000 175,000 1,281,000 9,554,000 0 967,000 0 545,000 311,000 653,000 12,030,000 0 14,000 22,393,000 34,437,000 06/04/2017 Home Depot, Inc. Net sales Cost of goods Gross profit R & D expenditures Sell, general & admin expenses Income before depreciation & amortization Depreciation & amortization Non-operating income/expense Interest expense Income before tax Provision for income taxes Minority interest Investments gains/losses Other income Net income before extra items Extra items & discontinued ops Net income Tom Steiner Consulting 01/29/2006 Us dollars 81,511,000 54,191,000 27,320,000 0 17,957,000 9,363,000 0 62,000 143,000 9,282,000 3,444,000 0 0 0 5,838,000 0 5,838,000 Page 4 01/30/2005 US dollars 73,094,000 48,664,000 24,430,000 0 16,504,000 7,926,000 0 56,000 70,000 7,912,000 2,911,000 0 0 0 5,001,000 0 5,001,000 02/01/2004 US dollars 64,816,000 44,236,000 20,580,000 0 13,734,000 6,846,000 0 59,000 62,000 6,843,000 2,539,000 0 0 0 4,304,000 0 4,304,000 06/04/2017 Ratio Analysis Lowes (2/3/2006) Lowe's (1/28/2005) Lowe's 1/30/2004) Lowe's (1/31/2003) Home Depot (1/29/2006) Performance Ratios 19.32% 18.86% 17.89% 17.96% 21.92% 11.23% 10.29% 9.68% 9.26% 13.12% 6.41% 5.97% 5.98% 5.71% 7.16% 6.41% 5.97% 5.98% 5.71% 7.16% 1.7520 1.7250 1.6195 1.6210 1.8324 1.7213 1.8325 1.8471 1.9404 1.6699 4.24 4.10 4.64 4.58 4.75 86.06 89.12 78.67 79.74 76.79 0.15 0.09 1.55 2.40 10.73 1.7520 1.7250 1.6195 1.6210 1.8324 1.3428 1.2222 1.5309 1.5562 1.1895 ROE ROA PM ROE Decomposition PM TAT EM Asset Management Inventory Turnover Inventory Days Average Collection Period Total Asset Turnover Liquidity Ratios Current Ratio Tom Steiner Consulting Page 5 06/04/2017 0.1929 0.1756 0.4815 0.4472 0.3058 41.91% 45.43% 45.86% 48.46% 39.51% 1.7213 1.8325 1.8471 1.9404 1.6699 Quick Ratio Debt Ratios Debt Ratio Equity Multiplier Tom Steiner Consulting Page 6 06/04/2017 Ratio ROE PM TAT EM Home Lowe's Lowe's Depot (2/3/06) (1/28/05) (1/29/06) 19.32% 18.86% 21.92% 6.41% 5.97% 7.16% 1.7520 1.7250 1.8324 1.7213 1.8325 1.6699 22.00% 21.50% 21.00% 20.50% 20.00% 19.50% 19.00% 18.50% 18.00% 17.50% 17.00% Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) ROE 8.00% 7.00% 6.00% Lowe's (2/3/06) 5.00% Lowe's (1/28/05) 4.00% Home Depot (1/29/06) 3.00% 2.00% 1.00% 0.00% PM 1.8400 1.8200 1.8000 Lowe's (2/3/06) 1.7800 Lowe's (1/28/05) 1.7600 Home Depot (1/29/06) 1.7400 1.7200 1.7000 1.6800 1.6600 TAT 1.8500 1.8000 1.7500 Lowe's (2/3/06) 1.7000 Home Depot (1/29/06) Lowe's (1/28/05) 1.6500 1.6000 1.5500 EM Tom Steiner Consulting Page 6 06/04/2017 Breakeven Analysis 2/3/2006 1/28/2005 1/30/2004 1/31/2003 1,234 35.04 23.05 11.99 0.00 7.30 0.12 0.79 0.13 8.34 3.65 1.41 2.25 0.00 2.25 1,087 33.5455 22.2705 11.2751 0.0000 6.9568 0.1132 0.7902 0.1619 8.0221 3.2530 1.2511 2.0018 0.0000 2.0018 952 32.3929 22.3414 10.0515 0.0000 5.8592 0.1345 0.7763 0.1891 6.9590 3.0924 1.1712 1.9212 0.0158 1.9370 828 27.4286 19.0798 8.3487 0.0000 4.8582 0.1355 0.6723 0.1912 5.8571 2.4916 0.9380 1.5536 0.0126 1.5662 Lowes Stores Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income Calculate Average ticket price per transaction (P) Transactions per store (Q) - millions Variable expenses per transaction (VC) Fixed expenses (FC) Break Even Sales Customer Transactions - millions Tom Steiner Consulting Page 7 68 63.43 59.21 56.80 0.51785059 0.52885919 0.54708423 0.48289738 44.5098122 42.1103949 40.8371973 39.511152 9.75 9.27 8.13 6.80 28.48 0.4209 27.59 0.4350 26.20 0.4425 22.32 0.3930 06/04/2017 Cost Type Variable Fixed Fixed Fixed Fixed Fixed Tom Steiner Consulting Page 8 06/04/2017 Graphical Breakeven Analysis Breakeven Analysis for Sales Variable Fixed Total Unit Sales Sales Expenses Expenses Expenses 0.3000 20.30 13.35 9.75 23.10 0.3250 21.99 14.47 9.75 24.21 0.3500 23.68 15.58 9.75 25.33 0.3750 25.38 16.69 9.75 26.44 0.4000 27.07 17.80 9.75 27.55 0.4250 28.76 18.92 9.75 28.66 0.4500 30.45 20.03 9.75 29.78 0.4750 32.14 21.14 9.75 30.89 0.5000 33.84 22.25 9.75 32.00 Breakeven Sales Level Sales Variable Expenses Fixed Expenses Total Expenses 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 0.3000 0.3250 0.3500 0.3750 0.4000 0.4250 0.4500 0.4750 0.5000 Units (millions) Tom Steiner Consulting Page 8 06/04/2017 Budget for a Lowe's Store Plan for 2005 Actual for 2005 Variance Lowe's Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income 31,454.76 21,694.38 9,760.38 36,464 24,208 12,256 5,009.24 2,513.62 2,495.62 5,689.56 130.56 753.78 183.60 6,757.50 3,002.88 1,137.30 1,865.58 15.30 1,880.88 7,562 123 859 176 8,720 3,536 1,360 2,176 0 2,176 1,872.44 -7.56 105.22 -7.60 1,962.50 533.12 222.70 310.42 -15.30 295.12 Assumption - In absence of information, we have assumed that plan for 2005 made at 102% of 2004 figures. Tom Steiner Consulting Page 9 06/04/2017 Capital Budgeting Model Assumptions 2004 Growth in Sales Stores Sales CGS Gross Profit Expenses SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax Earnings Tax Earnings from continuing ops Discontinued ops Net Income Estimated cost for one store Net working capital for one store Total cost for one store LT Growth assumption WACC Percentage of sales 2004 2003 18% N/A 952 828 30,838 26,112 21,269 18,164 9,569.00 7,948.00 5,578.00 128.00 739.00 180.00 6,625.00 2,944.00 1,115.00 1,829.00 15.00 1,844.00 N/A 100% 69% 31% 4,625.00 129.00 640.00 182.00 5,576.00 2,372.00 893.00 1,479.00 12.00 1,491.00 NPV PV Inflows PV Outflows 18% 0% 2% 1% 21% 10% 4% 6% 0% 6% 16.55 2.44 18.98 2% 9.5% Estimation of Cash Flows Sales CGS SG&A Depreciation OCF Additional Cap NWC Additional NWC FCF 2005 36,464 24,208 7,562 859 5,553 2006 43,243 28,443 9,014 980 6,766 1,226 1,255 46.38 6,825.38 2,804 1,999 25.10 9,595.10 2007 2008 44,107.86 44,990.02 29,011.86 29,592.10 9,194.28 9,378.17 999.60 1,019.59 6,901 7,039 2,860.08 2,038.98 25.60 9,787.00 2,917.28 2,079.76 26.11 9,982.74 2009 45,889.82 30,183.94 9,565.73 1,039.98 7,180 2,975.63 2,121.35 26.64 10,182.40 V2009 Develop WACC 0.095 1.00 0.91 0.83 0.76 0.70 2005 2006 2007 2008 2009 Present Value of Inflows 43,289.38 48,253.97 44,948.91 41,870.21 39,002.39 Present Value of Outflows 31,770.00 34,207.31 31,864.34 29,681.85 27,648.85 NPV 11,519.38 14,046.67 13,084.57 12,188.36 11,353.54 Valuation of Cash Flows Assumption - Wherever there is absence of clear instructions, growth rate of 2% as given in the sheet has been applied Tom Steiner Consulting Page 10 06/04/2017 $62,192.52 $217,364.86 $155,172.34 Tom Steiner Consulting Page 11 06/04/2017 Sales growth (same store) PV inflows PV outflows 36,464.00 43289.38 31770.00 43,243.00 48253.97 34207.31 44,107.86 44948.91 31864.34 44,990.02 41870.21 29681.85 45,889.82 39002.39 27648.85 Value and Cost Sensitivity Analysis on Capital Budgeting Model Sensitivity of Project Value on Sales Growth PV inflows PV outflows 60000.00 50000.00 40000.00 30000.00 20000.00 10000.00 0.00 CGS % 66% 66% 66% 66% 66% PV inflows PV outflows 43,289.38 31,770.00 48,253.97 34,207.31 44,948.91 31,864.34 41,870.21 29,681.85 39,002.39 27,648.85 Value and Cost Sales Growth (same store) Sensitivity of Project Value on CGS % PV inflows PV outflows 60,000.00 50,000.00 40,000.00 30,000.00 20,000.00 10,000.00 - CGS % Tom Steiner Consulting Page 11 06/04/2017 Tom Steiner Consulting Page 12 06/04/2017