Balance sheets and income statements for The Home Depot, Inc., and Lowe's Companies, Inc., follow. Refer to these financial statements to answer the requirements.

REQUIRED:

a. Compute return on equity (ROE). return on assets (ROA), and return on financial leverage ( ROFL) for each company in fiscal year 2017. Assume a tax rate of 35% for these year,.

b. Disaggregate the ROA's computed into profit margin (PM) and asset turnover (AT) components. Which of these factors drives ROA for each company? 

c. Compute the gross profit margin (GPM) and operating expense-to-sales ratios for each company. How do these companies' profitability measures compare?

d. Compute the accounts receivable turnover (ART), inventory turnover (INVT), and property, plant, and equipment turnover (PPET) for each company. How do these companies' turnover measures compare?

e. Compare and evaluate these competitors' performance in 2017.

Transcribed Image Text:

HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets (S millions) 2017 2016 2017 2016 Assets Current assets: Cash and cash equivalents Short-term investments Receivables, net.. $ 3,595 $ 2,538 588 558 102 100 2,029 12,549 1,952 Merchandise inventories. 12,748 11,393 10,458 884 Other current assets. 638 608 689 Total current assets Net property and equipment. Goodwill ... Long-term investments. Other assets.. 18,933 22,075 17,724 12,772 12,000 ..... 21,914 19,721 19,949 1,082 366 2.2 2,093 1,307 408 1,083 -- 1,246 1,235 1,011 Total assets $44,529 $42,966 $35,291 $34,408 Liabilities and shareholders' equity Current liabilities: $ 2,761 7.244 $ 1252 $ 1,431 $ 1,305 Short-lerm debt and current maturities of long-term debt. Accounts payable... Accrued salaries and related expenses .... 7,000 6,590 6,651 1,640 1,484 747 790 Deferred revenue 1,805 1,669 1,378 1,253 Income taxes payable. . Other current liabilities. 54 25 2,690 2,703 1,950 1,975 Total current liabilities... Long-term debt, excluding current maturities. Deferred income taxes. Other long-term liabilities 16,194 24,267 14,133 12,096 11,974 22,349 15,564 14,394 440 296 2,174 1,855 1,758 1,606 Total liabilities. Total stockholders' equity.. 29,418 43,075 1,454 38,633 4,333 27,974 6,434 5,873 Total liabilities and shareholders' equity... $44,529 $42,966 $35,291 $34,408