Part a is completed

a. As general background, read the first note to the financial statements, *Summary of Significant Accounting Policies."

* Next, compute the following for the fiscal years ending

January 31, 2016, and February 1, 2015 (round percentages to the nearest tenth of 1 percent, and other computations to one decimal place).

1. Current ratio. Current Ratio (2016) = 1.36 or 1.4 Current Ratio (2015) = 1.36 or 1.4
2. Quick ratio Quick Ratio (2016) = .41 or .4 Quick Ratio (2015) = .37 or .4
3. Amount of working capital. Page 683 Working Capital (2016) = $4,467 million Working Capital (2015) = $4,033 million
4. Percentage change in working capital from the prior year. Percentage Change in Working Capital= 10.76% or 10.8%
5. Percentage change in cash and cash equivalents from the prior year. Percentage change in Cash and Cash Equivalent- 28.61% or 28.6%

b. On the basis.of your analysis in part a, does the company's liquidity appear to have increased or decreased during the most recent fiscal year? Explain.

c. Other than the ability of Home Depot to pay for its purchases, do you see any major considerations that should enter into your company's decision? Explain.

d. Your company assigns each customer one of the four credit ratings listed below. Assign a credit rating to Home Depot, Inc., and write a memorandum explaining your decision. (In your memorandum, you may refer to any of your computations or observations in parts a through c, and to any information contained in the annual report.)

POSSIBLE CREDIT RATINGS

A. Outstanding Little or no risk of inability to pay. For customers in this category, we fill any reasonable order without imposing a credit limit. The customer's credit is reevaluated annually.

B. Good Customer has good debt-paying ability but is assigned a credit limit that is reviewed every 90 days. Orders above the credit limit are accepted only on a cash basis.

C. Marginal Customer appears sound, but credit should be extended only on a 30-day basis and with a relatively low credit limit. Creditworthiness and credit limit are reevaluated every 90 days.

D. Unacceptable Customer does not qualify for credit.