Advanced Financial Analysis Project

A continuation from Session 3:

Home Depot v. Lowes analysis

Return to the financial data you retrieved for Home Depot and Lowes from their respective websites in your Session 3 assignment.

A. Vertical Analysis

Prepare Common Sized Financial Statements and perform a vertical analysis and a horizontal analysis (trend) using the formats provided at the following link: Home Depot Lowes Common Sized and Trend.

Use % of net sales as the base for common sized F.S. for the Income Statement data; Use Total Assets for Assets on the Balance Sheet; Total Liabilities and Shareholders Equity as the base for liabilities and equity line items on the Balance Sheet. Identify and briefly discuss two Income Statement and two Balance Sheet Items which changed significantly and what the impact of those changes are. Finally discuss which company controlled their costs better. Your discussion must take place in a Microsoft word document, formatted in APA.

B. Horizontal Analysis (Trend)

Prepare a trend analysis for the Income Statement for Home Depot & Lowes using the first year as the base year. Select key Income Statement Items including: Net Sales or Revenues, COGS or Cost of Sales; Gross Profit; Total Expenses; and Operating Income.

Briefly discuss the implications of the changes in these items. Use the formats retrieved in step A. above for your analysis.

C. Ratio Analysis

We will continue to analyze Home Depot & Lowes by calculating ratios in addition to the ratios calculated in Session 3; and we will continue to analyze those ratios by your entering your assessment of whether each of the ratios results are strong (S) neutral (N) or weak (W); and your opinion on whether the ratio has gotten better or worse over the two years.

Retrieve the Ratio Analysis you performed in weeks 3 & 4 and calculate the following ratios for both years for both companies.

Liquidity

Prepare a liquidity analysis by calculating for each company the following:

Current ratio; Quick ratio; Receivable turnover; Average days sales uncollected; Inventory turnover

Profitability

Prepare a profitability analysis by calculating for each company the following:

Profit margin; Asset turnover; Return on assets; Return on equity

Long-Term Solvency

Prepare a long-term solvency analysis by calculating for each company the following:

Debt to equity ratio; Interest coverage ratio

Earnings Information

List Basic Earnings Per Share; List Dividends Per Share

Summary Analysis; Conclusion and Recommendation

Summary: Briefly discuss whether or not HD or Lowes can pay their debts (liquidity), are profitable, will likely continue to operate (long term solvency) and have a reasonable dividend paying history (earnings). Use the format at the following link: Financial Analysis Summary and Conclusion.

Conclusions and Recommendations: Take the position of considering these companies as an investment. Evaluate the expected return (short-term and long term) for each and prepare a recommendation of which investment would be more advantageous currently and what you would have recommended 2 years ago. Explain reasons why. Written product should be no more than 2 pages. (You must select one of the two - Home Depot or Lowes. Use the format provided at the link listed above.)

Refer to the Due Dates and Grades section for the specific due date and time for this assignment.