Use per store data together with the breakeven analysis formulas to generate the unit breakeven point and the sales breakeven point. The basic units are the number of transactions. The Breakeven Analysis Example (see link) using Home Depot data provides guidance

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 04/13/2013 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 04/13/2013 Home Depot, Inc. 01/29/2006 01/30/2005 02/01/2004 Us dollars US 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 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 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 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 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 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 Home Depot, Inc. Tom Steiner Consulting Page 3 04/13/2013 Ratio Analysis Lowes Lowe's ( 2 / 3 / 2 0 0 6 )(1/28/2005) Performance Ratios ROE ROA PM ROE Decomposition PM TAT EM Lowe's Lowe's Home Depot 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 Page 5 04/13/2013 Home Lowe's Lowe's Depot (2/3/06) (1/28/05) (1/29/06) ROE PM TAT EM Tom Steiner Consulting 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) Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) Lowe's (2/3/06) Lowe's (1/28/05) Home Depot (1/29/06) 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 PM 10 9 8 7 6 5 4 3 2 1 0 TAT 10 9 8 7 6 5 4 3 2 1 0 EM Page 6 04/13/2013 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 1 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 ### ### 04/13/2013 Graphical Breakeven Analysis Breakeven Analysis for Sales Tom Steiner Consulting 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 T otal Expenses 12 10 8 6 4 2 0 0.3000 0.3250 0.3500 0.3750 Page 8 0.4000 Unit s (millions) 0.4250 0.4500 0.4750 0.5000 04/13/2013 Budget for a Lowe's Store Plan for 2005 Actual for 2005 Variance Lowe's Tom Steiner Consulting 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 Page 9 04/13/2013 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 Tom Steiner Consulting 2005 2006 2007 2008 2009 Present Value of Inflows Present Value of Outflows NPV Page 10 04/13/2013 Sensitivity Analysis on Capital Budgeting Model Sales growth (same store) PV PV inflows outflows Sensitivity of Project Value on Sales Growth PV inflows PV outflows Va lue a nd Cos t 12 10 8 6 4 2 0 Tom Steiner Consulting PV PV inflows outflows Sensit ivity of Project Value on CGS % PV inflows PV outflows 12 Va lue a nd Cos t CGS % Sales Growt h (same st ore) 10 8 6 4 2 0 CGS % Page 11 04/13/2013 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 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 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 Total liabilities and stockholders' equity 44,482 39,020 34,437 Breakeven Analysis Example Home Depot Income Statements PER STORE 1/29/2006 1/30/2005 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 38.6741 25.7481 12.9259 Number of stores Number of customer transactions per store (Q) Average ticket price per transaction (P) Variable expense per transaction (VC) Fixed expenses per year (FC) Breakeven Sales Customer transactions 1,890 0.6852 54.89 37.5784 9.6196 8.0720 0.6603 8.7323 4.1937 0.0296 -0.0370 -0.0074 4.1862 1.5402 2.6460 30.50 0.5557 Type Step 1: Develop the per store income statement to be the aggregate income statement divided by the number of stores. variable Step 2: Categorize each income statement expense item as variable or fixed. fixed fixed fixed fixed Step 3: Calculate the variable expenses per transaction. The units we are using are the transactions. Step 4: Aggregate the fixed expenses per period. Step 5: Apply the appropriate formulas to generate the breakeven points for sales and units. Graphical Breakeven Analysis Breakeven Analysis for Sales 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. 64 57 0. 63 57 0. 62 57 0. 61 57 0. 60 57 0. 59 57 0. 58 57 Unit s (millions) 0. 57 57 0. 56 57 0. 55 57 0. 54 57 0. 53 57 0. 52 57 0. 51 57 57 0. 50 57 0. 49 0. 48 57 0. 47 57 0. 46 57 0.00 0. 45 57 Variable Fixed Total Expenses Expenses Expenses Unit Sales Sales 0.4557 25.01 17.12 9.62 26.74 0.4607 25.29 17.31 9.62 26.93 0.4657 25.56 17.50 9.62 27.12 0.4707 25.84 17.69 9.62 27.31 0.4757 26.11 17.88 9.62 27.50 0.4807 26.39 18.06 9.62 27.68 0.4857 26.66 18.25 9.62 27.87 0.4907 26.93 18.44 9.62 28.06 0.4957 27.21 18.63 9.62 28.25 0.5007 27.48 18.82 9.62 28.44 0.5057 27.76 19.00 9.62 28.62 0.5107 28.03 19.19 9.62 28.81 0.5157 28.31 19.38 9.62 29.00 0.5207 28.58 19.57 9.62 29.19 0.5257 28.86 19.75 9.62 29.37 0.5307 29.13 19.94 9.62 29.56 0.5357 29.40 20.13 9.62 29.75 0.5407 29.68 20.32 9.62 29.94 0.5457 29.95 20.51 9.62 30.13 0.5507 30.23 20.69 9.62 30.31 0.5557 30.50 20.88 9.62 30.50 0.5607 30.78 21.07 9.62 30.69 0.5657 31.05 21.26 9.62 30.88 0.5707 31.33 21.45 9.62 31.07 0.5757 31.60 21.63 9.62 31.25 0.5807 31.87 21.82 9.62 31.44 0.5857 32.15 22.01 9.62 31.63 0.5907 32.42 22.20 9.62 31.82 0.5957 32.70 22.39 9.62 32.01 0.6007 32.97 22.57 9.62 32.19 0.6057 33.25 22.76 9.62 32.38 0.6107 33.52 22.95 9.62 32.57 0.6157 33.80 23.14 9.62 32.76 0.6207 34.07 23.32 9.62 32.94 0.6257 34.34 23.51 9.62 33.13 0.6307 34.62 23.70 9.62 33.32 0.6357 34.89 23.89 9.62 33.51 0.6407 35.17 24.08 9.62 33.70 0.6457 35.44 24.26 9.62 33.88 0.6507 35.72 24.45 9.62 34.07