LO2, 3 P5-38. Analysis and Interpretation of Return on Investment for Competitors The Home Depot, Inc. Balance sheets and income statements for The Home Depot, Inc., and Lowe's Companies, Inc., fol- NYSE:: HD Lowe's Companies, low. Refer to these financial statements to answer the requirements. NYSE: LOW Inc. HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets 2017 2016 2017 2016 $ 3,595 $ 2,538 $ $ 588 102 558 100 - 10,458 884 1,952 12,748 638 18,933 22,075 2,275 2,029 12,549 608 17,724 21,914 2,093 11,393 689 12,772 19,721 1,307 408 1,083 $35,291 12,000 19,949 1,082 366 1,011 $34,408 1,246 $44,529 1,235 $42,966 ($ millions) Assets Current assets: Cash and cash equivalents Short-term investments Receivables, net.. Merchandise inventories. Other current assets. Total current assets Net property and equipment. Goodwill... Long-term investments. Other assets. Total assets 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 Total current liabilities.. Long-term debt, excluding current maturities Deferred income taxes. Other long-term liabilities Total liabilities ... Total stockholders' equity. Total liabilities and shareholders' equity $ 1,431 6,590 747 1,378 $ 1,305 6,651 790 1,253 $ 2,761 7244 1,640 1,805 54 2,690 16,194 24,267 440 2,174 43,075 1,454 $44,529 $ 1,252 7,000 1,484 1,669 25 2,703 14,133 22,349 296 1,855 38,633 4,333 $42,966 1,950 12,096 15,564 1,975 11,974 14,394 1,758 29,418 5,873 $35,291 1,606 27,974 6,434 $34,408 HOME DEPOT, INC. LOWE'S COMPANIES Income Statements Income Statements 2017 2016 2017 2016 $100,904 $94,595 $68,619 $65,017 66,548 62,282 45,210 42,553 34,356 32,313 23,409 22,464 (5 millions) 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.. Net earnings .... 17,864 1,811 14,681 17,132 1,754 13,427 15,376 1,447 6,586 15,129 1,489 5,846 (16) (74) 1,057 0 (36) 972 0 (12) 657 649 464 13,698 5,068 $ 8,630 12,491 4,534 $ 7,957 5,489 2,042 $ 3,447 5,201 2,108 $ 3,093 REQUIRED a. Compute retum on cquity (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 tumover (AT) compo- nents. Which of these factors drives ROA for each company? C. Compute the gross profit margin (GPM) and operating expense-to-sales ratios for each com- pany. 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? Compare and evaluate these competitors' performance in 2017. e
