P5-38. 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. LO2,3 The Home Depot, Inc. NYSE:: HD Lowe's Companies, Inc. NYSE :: LOW HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets ($ millions) 2014 2013 2014 2013 $1,723 $ 1,929 $ 406 125 $ 391 185 1484 11,079 1398 11,057 8,911 578 Assets Cush and cash oquivalents ... Short-term investments .... Receivables, net .. Merchandise inventories.... Other current assets ..... Total current assets Property and equipment, net ... Goodwill... Long-torm investments........... Other assets. Total assets. 1,016 15.302 9,127 593 10,296 20,834 15.279 23,348 1,289 10,080 20,034 22,720 1,353 364 002 1,359 S31827 279 1,323 $32,732 539,946 $40.518 $ $ $ S 328 5.807 1.391 552 5,124 773 435 5,008 785 892 1466 979 33 5,797 1,426 1,337 12 2.142 10,749 14,691 2.240 Liabilities and shareholders' equity Short-term debt and current maturities of long-term debt......... Accounts puyablu........ Accrued componsation 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............ 1.920 9.348 10.815 1756 8.876 10,086 11,269 16,869 642 1844 514 2.042 1.599 1626 20.079 30,524 9322 27996 12.522 21,759 9.968 11853 Total liabilities and shareholders' equity .............. $39.946 $40,518 S31,827 $32,732 HOME DEPOT, INC. LOWE'S COMPANIES Income Statements Income Statements ($ millions) 2014 2013 2014 2013 : $83,176 54,222 $78,812 51,422 $53,417 34,941 : Net sales ............. Cost of sales......................... Gross profit. ......... Selling, general and administrative. Depreciation and amortization ......... Operating income. ........... Investment and other income... Interest expense ... . ........... Earnings before income taxes........... Provision for income taxes. Net earnings. $56,223 36,665 19,558 13,281 1,485 4,792 27,390 16,597 1,627 9,166 : ............. : 28,954 16,834 1,651 10,469 337 830 9,976 3,631 $ 6,345 12 18,476 12,865 1,462 4,149 4 480 3,673 1,387 $ 2,286 711 8,467 3,082 522 4,276 1,578 $ 2,698 $ 5,385 REQUIRED a. Compute return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL) for each company in 2014. b. Disaggregate the ROA's computed into profit margin (PM) and asset turnover (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