(Analyzing the quality of earnings and sustainability of capital expenditures)  Look up the statement of cash flows for both Home Depot and Lowes using Yahoo! Finance.

a.  Compute the quality of earnings ratio for both firms and all three years of data provided in the popup window:  

	Home Depot			Lowes
	2011	2012	2013	2011	2012	2013
Net Income	$3,338,000	$3,883,000	$4,535,000	$2,010,000	$1,839,000	$1,959,000
Cash Flow from Operations	$4,585,000	$6,651,000	$6,975,000	$3,852,000	$4,349,000	$3,762,000
Capital Expenditures (CAPEX)	$1,096,000	$1,221,000	$1,312,000	$1,329,000	$1,829,000	$1,211,000

.

b.  Compare the quality of earnings ratio for the two firms. For which firm do you feel most comfortable about the reported earnings quality? Explain.

c.  Compute the capital acquisitions ratios for the latest three years for both firms.

d.  Compare Home Depot's and Lowes' abilities of using operating cash flow to finance their capital expenditures. Which firm has relied more on the capital markets?

a.  Compute the quality of earnings ratio for both firms and all three years of data provided.

What is Home Depot's quality of earnings ratio in 2011?

enter your response here%

(Round to one decimal place.)

Part 2

What is Home Depot's quality of earnings ratio in 2012?

enter your response here%

(Round to one decimal place.)

Part 3

What is Home Depot's quality of earnings ratio in 2013?

enter your response here%

(Round to one decimal place.)

Part 4

What is Lowes' quality of earnings ratio in 2011?

enter your response here%

(Round to one decimal place.)

Part 5

What is Lowes' quality of earnings ratio in 2012?

enter your response here%

(Round to one decimal place.)

Part 6

What is Lowes' quality of earnings ratio in 2013?

enter your response here%

(Round to one decimal place.)

Part 7

b.  Compare the quality of earnings ratio for the two firms. For which firm do you feel most comfortable about the reported earnings quality? (Select the best choice below.)

A.

The information is not sufficient to tell which firm's quality of earnings ratios is more stable.  

B.

Lowes' quality of earnings ratio is fairly stable over time, this suggests that the firm's earnings and cash flows are in sync and that reported earnings provide a high-quality indicator of the firm's future performance potential.

C.

Home Depot's quality of earnings ratio is fairly stable over time, this suggests that the firm's earnings and cash flows are in sync and that reported earnings provide a high-quality indicator of the firm's future performance potential.

D.

Both Home Depot's and Lowes' quality of earnings ratios are fairly stable over time, this suggests that the firm's earnings and cash flows are in sync and that reported earnings provide a high-quality indicator of the firm's future performance potential.

Part 8

c.  Compute the capital acquisitions ratios for the latest three years for both firms.

What is Home Depot's average capital acquisitions ratio over the three-year period?

enter your response here%

(Round to one decimal place.)

Part 9

What is Lowes' average capital acquisitions ratio over the three-year period?

enter your response here%

(Round to one decimal place.)

Part 10

d. Compare Home Depot's and Lowes' abilities of using operating cash flow to finance their capital expenditures. Which firm has relied more on the capital markets?  (Select the best choice below.)

A.

Consequently, for the past three years, both Home Depot and Lowes had on average about the same amount of operating cash flows to finance its new expenditures for plant and equipment.

B.

Consequently, for the past three years, Lowes had on average more operating cash flows to finance its new expenditures for plant and equipment.

C.

Consequently, for the past three years, Home Depot had on average more operating cash flows to finance its new expenditures for plant and equipment.

D.

The information is not sufficient to tell which firm is more sufficiently on using the operating cash flows to finance its new expenditures for plant and equipment.