Refer to the financial statements of Home Depot and Lowe's presented in PS-38.

REQUIRED:

a. Compute each company's current ratio and quick ratio for each year. Comment on any changes that you observe.

b. Compute each company's times interest earned ratio and debt-to-equity ratio for each year. Comment on any observed changes.

c. Compare these two companies on the basis of liquidity and solvency. Do you have any concerns about either company's ability to meet its debt obligations?

Data from PS-38:

Transcribed Image Text:

HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets (S millions) 2016 2017 2016 2017 Assets Current assets: $ 2,538 Cash and cash equivalents Short-term investments Receivables, net.. $ 3,595 588 558 102 100 -- 1,952 2,029 Merchandise inventories. 12,748 12,549 11,393 10,458 884 Other current assets. 638 608 689 Total current assets 18,933 17,724 12,772 12,000 ..... Net property and equipment. Goodwill ... Long-term investments. Other assets.. 22,075 21,914 19,721 19,949 2,093 1,307 1,082 408 366 -- 1,246 1,235 1,083 1,011 Total assets $44,529 $42,966 $35,291 $34,408 Liabilities and shareholders' equity Current liabilities: Short-te rm debt and current maturities of long-term debt. Accounts payable... Accrued salaries and related expenses $ 2,761 7.244 $ 1252 $ 1,431 $ 1,305 ..... 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 5,873 43,075 38,633 4,333 27,974 6,434 1,454 Total liabilities and shareholders' equity.. $44,529 $42,966 $35,291 $34,408 %24