Financial Analysis Of Home Depot
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INTRODUCTION
Home Depot is the largest home improvement retailer in the US. But in 1978, you would have had to travel all the way to the only store in Atlanta Georgia. In 1978, the corporation is founded by Bernie Marcus and Arthur Blank. The original partnership was called “MB Associates” and was officially incorporated June 29, 1978. The first regularly scheduled in-store how-to product training seminars began in 1980 with 4 stores and $22M in sales revenue. The next year the company goes public on the NASDAQ and doubles its sales revenue. In 1990 Home Depot rises to the top be surpassing Lowes to become number one home improvement retailer.
The Home Depot stores sell a wide assortment of building materials, home improvement and lawn and garden products and provide a number of services. In addition to The Home Depot stores, the Company has a retail store format that sells products and services primarily for home decorating and remodeling projects called EXPO Design Center and two retail store formats focused on professional customers called Home Depot Supply and The Home Depot Landscape Supply. The Company has two Home Depot Floor Stores located in Texas and Florida that primarily sell flooring products. In addition to its retail stores, the Companys business also includes Home Depot Supply. Home Depot Supply distributes products and sells installation services primarily to professional business contractors, businesses and municipalities.
EXPO Design Center stores are designed to be a complete home decorating and remodeling resource for middle- to upper- income D-I-F-M customers by offering interior design products for kitchens, baths, appliances and flooring, as well as products for lighting, decorating and storage and organization projects, beyond those available in The Home Depot stores. Home Depot Direct offers customers expanded merchandise selection and extra time convenience through website and catalog shopping, with direct product delivery to the home, office or job site. It also provides customers with valuable online information about home improvement topics and merchandise for sale in local The Home Depot stores.
The Home Depot also gives back to the communities. It established the Home Depot foundation in 2000. Also, in 2003 it launched project home front. This was established to help military families in repairing and maintaining their homes. The Home Depot as come a long way from one store in Atlanta to over 2,100 stores throughout the United States, Canada and Mexico producing sales in excess of $90 billion dollars. The company operates in the home improvement retail industry. The company has 10,000,000 shares authorized in which 2,421,000 are issued and 1,970,000 are outstanding.
In February 2007 Home Depot announced a number of initiatives it said are aimed at improving shopper experience, including spending $865 million on programs such as maintenance and merchandising reset programs to keep stores clean and uncluttered, and $275 million on logistics improvements to improve product availability. It also says with the slump in the housing market the industry is taking a beating and doesnt plan a recovery until 2008. We can expect that Home Depot will have lower earnings this year, but this maybe great news for investors because you can expect for market prices to lower but still gain a solid investment when looking at the housing market trends over the last 30 years which seem to always bounce back.
FINANCIAL ANALYSIS
Sales and Income Record:
The current trend is upward as sales grew so did net income. This exponential trend shows that as long as expenses stay at the same percentage in relation to percentage in sales growth the firm will continue to produce high profits. Investors should hold on to their shares of stock because Home Depot keeps reinventing new ways to bring there customers in for more than just hardware. The Home Depot has grown its EXPO design centers focused on the do-it-for-me customer. However, looking at the current years net income the company had a 1.3% drop from 2005. This can be attributed to an 11.2% increase in operating expenses compared to only 10.2% growth in sales. This increase in operating expenses has come mostly from the companys newly opened EXPO design centers.
Expense Distribution:
Major Expenses:
FY 2006 (in millions)
Cost of sales
$61,054
Selling, Gen & Admin Expenses
$18,348
Depreciation and amortization expenses
$ 1,762
The chart above shows the distribution of Home Depots expenses for fiscal year 2006, which is $81,164. The distribution shows that 75% is cost of sales and 23% is operating and G & A expenses. The company should make sure they keep expenses relatively stable to ensure an exponential growth rate.
c. Assets and Capital Structure:
Assets:
FY 2006 (in millions)
Current Assets
$18,000
Notes Receivable (LT)
$ 343
Property, Plant, & Equipment
$26,605
Other Assets and Goodwill
$ 7,315
The chart above shows the distribution of Home Depots assets for fiscal year 2006, which is $52,263. The distribution shows that over half is in plant, property, and equipment. The reason is because the company owns most of it stores and all the specialty equipment that is contained in each store. The current assets of the company are about 34% in relation to a small number of long term and other assets. The company is not very liquid because most of assets are fixed and long-term.
Capital Structure:
FY 2006 (in millions)
Current Liabilities
$12,931
Long-term & Other Liabilities
$14,302
Common Equity
$25,030