finnance

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Part 1 Financial Analysis Case relates to the textbook Module 1 including Appendix 1A and 1B, and Module 2.
Requirements: Upload your completed Part 1 template by clicking on the Part 1 Financial Analysis Case link. Enter your name on page 1 in the area provided above. Please save your file with the initial of your first name and your last name.
1.
URL of 10-K report State incorporated
The Home Depot, Inc. for fiscal year ending January 29, 2017 https://www.sec.gov/Archives/edgar/data/354950/000035495017000005/hd-01292017x10xk.htmDelaware
Lowe’s Companies, Inc. for fiscal year ending February 3, 2017 https://www.sec.gov/Archives/edgar/data/60667/000006066717000076/lowesform10k.htmNorth Carolina
2.
The Home Depot, Inc. for fiscal year ending January 29, 2017 Lowe’s Companies, Inc. for fiscal year ending February 3, 2017
Summarize company’s business operations It is the largest home improvement retailer based on net sales. It sells a wide assortment of building materials, home improvement products, lawn and garden products and provides other services. It is the second largest home improvement retailer. It operates home improvement and hardware stores countrywide, serving a wide variety of retail and professional customers.
Page number reference 3.
Total Assets Total Liabilities Total Equity Financial Statement Name as stated in the 10-K
The Home Depot, Inc. Numbers are stated in: Millions 42,966 38,633 4,333(Total stockholder equity) Consolidated Balance Sheets
Lowe’s Companies, Inc.

Numbers are stated in: Millions 34,408 27,974 6,434( Total Shareholders’ equity) Consolidated Balance Sheets
Compare and Contrast the size of the net assets (same as book value or same as equity) of the two companies.
Lowe’s net assets are higher than Home depots. This may not be necessarily a good thing. Ideally, a higher net asset count is preferable, seeing as the more assets to generate income a company has, the better off it is. However, a low net asset in comparison to the sales generated may indicate a higher efficiency of a company’s assets.
4.
Net Sales Cost of Sales Net Earnings Financial Statement Name
The Home Depot, Inc.
Numbers are stated in: Millions 94,595 62,282 7,957 Consolidated Statements of Earnings
Lowe’s Companies, Inc.
Numbers are stated in: Millions 65,017 42,553 3,093 Consolidated Statements of Earnings
Compare and Contrast the size of sales and net income of the two companies.
In this case, Home Depot, although it may have lower net assets, as indicated in question number three, its assets seems to be more efficient regarding the generation of high sales/income. This is clearly indicated by the net sales and net income earned when compared to Lowe’s.
5.
Make sure you show computations Average assets-Use the total assets from the previous year plus the total assets for the current year and divide by 2 Return on Assets=Net Earnings/Average AssetsIn percentage terms to 2 decimal points.Profit Margin=Net Earning/Net salesIn percentage terms to 2 decimal points. Asset Turnover=net sales/average assets.Show to 2 decimal points. Do not show in percentage terms.
The Home Depot, Inc.
41,973+42,966/2=42,469.5 (7,957/42,469.5)*100=18.74 (7,957/94595)*100=8.41 94,595/42,469.5=2.23
Lowe’s Companies, Inc. 34,408+31,266/2= 32,837 (3,093/32,837)*100=9.42 (3,093/65,017)*100=4.76 65,017/32837=1.98
Compare and Contrast and comment on the findings.
On average, Home Depot has high values of the above-calculated ratios when compared to Lowe’s company. Regarding return on assets and profit margin, Home depot earns almost twice as much as Lowe’s on their asset investments. This signals that it is a better option for investors than Lowe’s, as it is much more effective in generating income/profit from money invested in it. A high net asset turnover indicates efficiency in operations of a company. In this case, Home Depot performs better than Lowe’s and seems to efficiently generate higher sales from its assets.
6.
Based on Consolidated Statements of Cash Flows for HD January 29, 2017, and LOW February 3 Dollars In Millions The Home Depot, Inc.
Lowe’s Companies, Inc.
a. What was the dollar amount of the companies’ cash flow from operations?
9,783 5,617
b. Is operating cash flows smaller or larger than net income?
Larger Larger
c. What are the two greatest adjustments made to net income to determine operating cash flows?
Adjustments to non-cash items like Depreciation and amortization.
Adjustments regarding the changes in assets and liabilities ( account payable and accrued expenses
Adjustment of the non-cash item – depreciation, and amortization.
Adjustment regarding the changes in assets (account payable).
d. Determine the dollar amount and direction (cash source-positive or use-negative) of cash flows from investing activities.
1,583
Cash use 3,361
Cash use
e. Determine the dollar amount and direction (cash source-positive or use-negative) of cash flows from financing activities. 7,870
Cash use 2,092
Cash use
f. Did the company purchase new property and equipment (“capital expenditures”) during the year using cash? Which section of the statements of cash flows did you find this information and how much did they buy using cash? Yes
This is found in the cash flow from investing activities section. The total amount of cash used was 1,621. Yes
This is found in the cash flow from investing activities section. The total amount of cash used was 1,167.
g. Did the company reduce any long-term debt? Which section of the statements of cash flows did you find this information and how much did they pay cash? Yes.
This is found in cash flows from financing activities section. The total amount of cash used in repayments of long-term debt was 3,045. Yes.
This is found in cash flows from financing activities section. The total amount of cash used in repayments of long-term debt was 1,173.
h. Did the company purchase any of their stock using cash? Which section of the statements of cash flows did you look this information? How much stock did they repurchase? Yes. The company repurchased common stock. This information is found in cash flows from financing activities section. They repurchased stock worth 6,880. Yes. The company repurchased common stock. This information is found in the cash flows from financing activities section. They repurchased stock worth 3,595.
i. Did the company pay dividends? Which section of the statements of cash flows did you look this information? How much did they pay in dividends? Yes.
This is found in cash flows from financing activities section. The total amount paid in dividends was 3,404. Yes.
This is found in cash flows from financing activities section. The total amount paid in dividends was 1,121.
7.
Make sure you are referencing the auditor’s report of the consolidated financial statements. The Home Depot, Inc. Inc. Lowe’s Companies, Inc.
Who is the report addressed to? The Board of Directors and Stockholders The Board of Directors and Shareholders.
Who are the auditors? KPMG LLP Deloitte & Touche LLP
What is the nature of the opinion? You can copy the sentence from the auditor’s report which provides the auditor’s opinion. The auditors gave an unqualified opinion on The Home Depot Inc.’s consolidated financial statements and internal controls over financial reporting They stated in the report that Home Depot ‘…maintained, in all material respects effective internal controls over financial reporting…’ based on the criteria established the integrated framework issued by the Committee of Sponsoring Organization of the Treadway Commission,; and further stated that the consolidated financial statements ‘… present fairly, in all material respects, the financial position of The Home Depot and its subsidiaries…’ They also found the results of their operations and their cash flows for each of the fiscal years, to be in conformity with the US GAAP. The auditors expressed an unqualified opinion on the company’s consolidated financial statements and financial statement schedule for the fiscal year specified. They stated in the report that the consolidated financial statements ‘… present fairly, in all material respects, the financial position of the company…the results of its operations and cash flows for each of the three fiscal years ….(are) in conformity with the accounting GAAP in the united states”. Concerning the internal control over financial reporting, they expressed an unqualified opinion based on the criteria established the integrated framework issued by the Committee of Sponsoring Organization of the Treadway Commission,
Compare and Contrast the information provided in the report.
In both cases, the auditors gave an unqualified opinion giving the companies a clean bill of health.
8.
The Home Depot, Inc. Inc. Lowe’s Companies, Inc.
Provide the page number(s) signed by the CEO, CFO, and the Board of Directors. 65 80
Explain what each company has provided to their shareholders per the Security Exchange Act of 1934 in Item 9a. Management report on the effectiveness of the internal control over financial reporting.
The auditor’s report, from an independent registered public accounting firm. Management report on the effectiveness of the internal control over financial reporting.
The auditor’s report, from an independent registered public accounting firm.
9.
The Home Depot, Inc. Inc. Lowe’s Companies, Inc.
Review the SWOT analysis for both companies and summarize the competitive landscape. Your summary must include specific information for each company from the SWOT analysis posted at D&B Business Browser. Home depot strengths lie in productivity and diversification. In comparison to its main competitor, Lowes, it has managed to lead in the home improvement industry with lesser stores. Other factors that contribute to high productivity include adopting technology along the supply chain, better than its competitors. When it comes to diversification, their service portfolio is incomparable to any other in the industry. It ranges from home appliances to hardware and professional materials, as well as an array of services, all under one roof.
However, its overreliance on the US market and lack of diversification of operations to other countries is a weakness as well as a threat. Also, it’s over-reliance on debt finance impacts their cash flows negatively, as well as their profitability in the long run.
Home Depot, despite being the largest home improvement retailer, faces stiff competition from stores such as Lowes, Wal-Mart, and Amazon, with an equal and bigger market footprint. Lowe’s strength lies in its market share, As the second largest home improvement retailer, strong distribution networks, as well as strong brand reputation. Lowe has also managed to adapt to technology by modernizing its service delivery, as well as the e-commerce platform. It has also diversified into Latin America and Canadian markets, allowing it to tap into a vast purchasing power, which gives it more stability than its competitors.
However, it still faces fierce competition from other retailers such as Home Depot, Wal-Mart, and Amazon. Its geographic reach is still limited to its overseas market lacking physical stores, which affects its ability to thrive in those particular markets.
Lowes has an opportunity to diversify by further geographical expansions.
10.
The Home Depot, Inc. Inc. Lowe’s Companies, Inc.
What is the main purpose of this document? The main purpose of this document is to ensure transparent and prudent management and preservation of the value of the company, by outlining the values and principles of the company, as well as its ethical obligations to its shareholders and other stakeholders. The main purpose of this document is to govern the management of the company by outlining policies that govern the selection and evaluation of the board of directors and management as well outlining the rules of interaction with stakeholders.
List 5 areas that were referenced from each of the company’s corporate governance guidelines. The company bylaws
The code of conduct and ethics
Stock ownership guidelines
Policy on consideration and evaluation of the Board candidates.
The independent auditor policy
Political activity and Government relations policy Board membership criteria
Policy on selection of directors
Policy on the Evaluation and assessment of management and the board of directors.
The policy governing the board’s interaction and access with/to the stakeholders.
Policy on the Selection and formal evaluation of the Chief Executive Officer and succession planning.
11.
Make sure you show computations Book value, which is total equity applicable to the stockholders of the company Market value-show your calculation, which is Closing price times number of shares outstanding Market-to-Book ratio –show your calculation which is market value/book value
The Home Depot, Inc. Inc. 4,333 Nasdaq share price as at 29.01.2017=137.99
Number of outstanding shares =1203
=137.99*1203= 166,001.97 =166,001.97/4333=38.3
Lowe’s Companies, Inc. 6,434 Nasdaq share price as at 27.02.2017=76.2
=866*76.2=65,989.2 =65,989.2/6434=10.26
Comment:
The price to book ratio of both companies is very high. Although this may signal overvaluation that may face a market correction, it can also imply that a company is earning high returns on its assets. In the case of these two companies, as the biggest home improvement companies in the market, the later may hold true. Also if you examine the turnover on the net assets, the company assets are very efficient.

References
The United States Securities and Exchange Commission. (n.d.). The Home Depot, Inc Fiscal Year 2016 Form 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/354950/000035495017000005/hd-01292017x10xk.htm