Home Depot’s stock price dropped by 23 percent between January 1985 and February 1986, making it difficult for the company to rely on equity capital to finance its growth. Covenants on existing debt (discussed in Note 3 of Exhibit 4) restrict the magnitude of the company’s future borrowing. Given these constraints, what specific actions should Home Depot take with respect to its current operations and growth strategy? How can the company improve its operating performance? Should the company change its strategy? If so, how?

AppendixLO1