Need assistance with the homework assignment attached.

Directions: Answer all the questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please ?cut and paste? your solutions into the Word or PDF file. Be sure to show how you did your calculations. Also, please be sure to include your name at the top of the first page of your file.

Question #1

Using the accompanying financial statements (Excel Workbook), assess The Home Depot concerning liquidity, solvency, profitability, and stock performance. For each area, you should calculate the ratios we discussed in class and provide a brief analysis of the ratios calculated. You do not need to perform vertical analysis for this assignment. I include historical stock price information and outstanding common share information below.

You do not need to look beyond the financial statements to complete this assignment.

Fiscal Year Ended	2/1/2015	2/2/2014	2/3/2013	1/29/2012
Adjusted Closing Price	$103.34	$74.44	$63.87	$41.67
Common Shares Outstanding (millions)	1,307	1,380	1,486	1,523

ACT 5140 - Accounting for Decision Makers HW #1 - Appendix A Directions: Answer all the questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please \"cut and paste\" your solutions into the Word or PDF file. Be sure to show how you did your calculations. Also, please be sure to include your name at the top of the first page of your file. Question #1 Using the accompanying financial statements (Excel Workbook), assess The Home Depot concerning liquidity, solvency, profitability, and stock performance. For each area, you should calculate the ratios we discussed in class and provide a brief analysis of the ratios calculated. You do not need to perform vertical analysis for this assignment. I include historical stock price information and outstanding common share information below. You do not need to look beyond the financial statements to complete this assignment. Fiscal Year Ended 2/1/2015 Adjusted Closing Price $103.34 Common Shares Outstanding (millions) 1,307 2/2/2014 $74.44 2/3/2013 $63.87 1/29/2012 $41.67 1,380 1,486 1,523 HOME DEPOT INC $ in millions Year Ending NET SALES Cost of sales GROSS PROFIT Operating Expenses: Selling, General and Administrative Depreciation and Amortization Total Operating Expenses OPERATING INCOME Interest and Other (Income) Expense: Interest and Investment Income Interest Expense Other 2/1/2015 $83,176 54,222 28,954 2/2/2014 $78,812 51,422 27,390 2/3/2013 $74,754 48,912 25,842 1/29/2012 $70,395 46,133 24,262 16,834 1,651 18,485 10,469 16,597 1,627 18,224 9,166 16,508 1,568 18,076 7,766 16,028 1,573 17,601 6,661 (337) 830 0 (12) 711 0 (20) 632 (67) (13) 606 0 Interest and Other, net Earnings before income taxes Provision for Income Taxes NET EARNINGS 493 9,976 3,631 $6,345 699 8,467 3,082 $5,385 545 7,221 2,686 $4,535 593 6,068 2,185 $3,883 Basic earnings per share Diluted earnings per share $4.74 $4.71 $3.78 $3.76 $3.03 $3.00 $2.49 $2.47 Dividends per share $1.88 $1.56 $1.16 $1.04 HOME DEPOT INC $ in millions As of 2/1/2015 2/2/2014 2/3/2013 1/29/2012 ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Merechandise inventories Other current assets $1,723 1,484 11,079 1,016 $1,929 1,398 11,057 895 $2,494 1,395 10,710 773 $1,987 1,245 10,325 963 Total Current Assets 15,302 15,279 15,372 14,520 Property & Equipment, at cost Less Accumulated Depreciation and Amortization Net Property & Equipment 38,513 15,793 22,720 39,064 15,716 23,348 38,491 14,422 24,069 38,975 14,527 24,448 Goodwill Other assets TOTAL ASSETS 1,353 571 $39,946 1,289 602 $40,518 1,170 473 $41,084 1,120 430 $40,518 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term debt Accounts payable Accrued salaries & related expenses Sales taxes payable Deferred revenue Income taxes payable Current installments of long-term debt Other accrued expenses $290 5,807 1,391 434 1,468 35 38 1,806 $0 5,797 1,428 396 1,337 12 33 1,746 $0 5,376 1,414 472 1,270 22 1,321 1,587 $0 4,856 1,372 391 1,147 23 30 1,557 Total current liabilities 11,269 10,749 11,462 9,376 Long-term debt, excluding current installments Other long-term liabilities Deferred income taxes Total liabilities 16,869 1,844 642 30,624 14,691 2,042 514 27,996 9,475 2,051 319 23,307 10,758 2,146 340 22,620 Shareholders equity: Common stock Paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost Total shareholders equity 88 8,885 26,995 (452) (26,194) 9,322 88 8,402 23,180 46 (19,194) 12,522 88 7,948 20,038 397 (10,694) 17,777 87 6,966 17,246 293 (6,694) 17,898 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $39,946 $40,518 $41,084 $40,518 HOME DEPOT INC $ in millions Year Ending OPERATING ACTIVITIES: Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Stock-based compensation expense Goodwill impairment Changes in Assets and Liabilities, net of the effects of acquisition and disposition Receivables, net Merchandise inventories Other current assets Accounts payable and accrued expenses Deferred revenue Income taxes payable Deferred income taxes Other long-term liabilities Other 2/1/2015 2/2/2014 $6,345 $5,385 $4,535 $3,883 1,786 225 (323) 1,757 228 0 1,684 218 97 1,682 215 0 (81) (124) (199) 244 146 168 159 (152) 48 (15) (455) (5) 605 75 119 (31) 13 (48) (143) (350) 93 698 121 87 107 (180) 8 (170) 256 159 422 (29) 14 170 (2) 51 $8,242 $7,628 $6,975 $6,651 (1,442) 323 0 (200) 48 (1,389) 0 0 (206) 88 (1,312) 0 0 (170) 50 (1,221) 0 101 (65) 56 Net cash used by investing activities FINANCING ACTIVITIES: Proceeds from short-term borrowings, net Proceeds from long-term borrowings, net of discount Repayments of long-term debt Repurchases of common stock Proceeds from sales of common stock Cash dividends paid to stockholders Other financing activities ($1,271) ($1,507) ($1,432) ($1,129) 290 1,981 (39) (7,000) 252 (2,530) (25) 0 5,222 (1,289) (8,546) 241 (2,243) (37) 0 0 (32) (3,984) 784 (1,743) (59) 0 1,994 (1,028) (3,470) 306 (1,632) (218) Net cash used by financing activities ($7,071) ($6,652) ($5,034) ($4,048) Change in Cash and Cash Equivalents Effect of exchange rate changes on cash and cash equivalents ($100) (106) ($531) (34) $509 (2) $1,474 (32) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 1,929 $1,723 2,494 $1,929 1,987 $2,494 545 $1,987 SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS MADE FOR Interest, net of capitalized interest Income taxes $782 $3,435 $639 $2,839 $617 $2,482 $580 $1,865 Net cash provided by operating activities INVESTING ACTIVITIES: Capital expenditures Proceeds from sales of investments Proceeds from sale of business Payments for business acquired Proceeds from sales of property & equipment 2/3/2013 1/29/2012 ACT 5060 - Accounting for Decision Makers Appendix A - Financial Analysis ACT 5060 Appendix A Felo Financial Analysis Assessing past performance Predicting future performance Comparisons Identifying trends ACT 5060 Appendix A Felo Sources of Information Financial statements Footnotes to financial statements Summary of accounting principles used Management's Discussion & Analysis (MD & A) Auditor's report Comparative financial data in 10-K ACT 5060 Appendix A Felo Financial Analysis Tools Looking at statements as a whole Vertical analysis / Horizontal analysis Ratio analysis ACT 5060 Appendix A Felo Vertical & Horizontal Analysis Figures in statements as a % of base Allows for comparison of firms of different sizes and of different time periods Helps us to identify trends and changes in relative size of figures I/S - base is net sales B/S - base is total assets ACT 5060 Appendix A Felo Ratio Analysis Over time (horizontal analysis) Other companies or industry averages Benchmarks ACT 5060 Appendix A Felo Ratio Analysis Categories Short-term solvency (liquidity) Long-term solvency Profitability performance Stock performance ACT 5060 Appendix A Felo Short-Term Solvency Liquidity Current ratio Working capital Acid-test ratio Inventory turnover Days sales in inventory A/R turnover Days sales in receivables Free cash flow ACT 5060 Appendix A Felo Short-Term Solvency Assessment Some of these ratios are skewed by the litigation charge since it was classified as a current liability last year and was paid out this year. This results in the current ratio, working capital, and the acid-test ratio being relatively low last year. They have all increased this year, but are still lower than 2 years ago. Even though they are lower, none indicate a problem with short-term solvency. ACT 5060 Appendix A Felo Short-Term Assessment (2) Although days to collect increased again, A/R is a relatively small component of total assets, making the increase less of a worry. A good sign is that days to sell decreased again, this time by nearly 9 days. This means Starbucks on average sold inventory 11 days quicker than just 2 years ago. Free cash flow was negative this year, largely because the litigation charge was paid. Without this, FCF would have increased in the current year. Also, purchases of PPE have increased significantly the last 2 years. ACT 5060 Appendix A Felo Long-Term Financial Condition Solvency Debt-to-equity ratio Times-interest earned ACT 5060 Appendix A Felo Long-Term Assessment Debt to equity increased significantly the last 2 years, largely due to an increase in debt. In the previous year, a decrease in equity also caused this to increase. Normally a negative interest coverage ratio (last year) is a very bad sign. Although I am sure Starbucks would prefer that it was positive, we can again attribute this to the litigation charge. Without that, it would have been highly positive last year. The firm does not appear to be in any danger of not being able to meet interest payments or their long-term obligations. ACT 5060 Appendix A Felo Performance Analysis Profitability performance Stock performance ACT 5060 Appendix A Felo Profitability Performance Asset turnover Return on sales Gross margin % Return on assets Return on equity Average interest rate ACT 5060 Appendix A Felo Profitability Assessment This is skewed by the litigation charge last year. While it is certainly an issue, there are some positive things to say about profitability. The gross margin % has increased for the second year in a row. It is especially important because the days to sell decreased, meaning Starbucks sold its products faster while increasing prices faster than cost of sales increased. Also, \"store operating expenses\" (a major expense) has also decreased as a % of total net revenues. ACT 5060 Appendix A Felo Profitability Assessment (2) One bad sign is that asset turnover decreased significantly. This means that its assets generated less sales than in the past. This is a sign that a company has over saturated the market place. After taking out the impact of the litigation charge for the past 2 years, return on sales and ROA both decreased this year. Although higher than 2 years ago, the decrease this year is not positive. ACT 5060 Appendix A Felo Profitability Assessment (3) Shareholders should be pleased with the high ROE. After removing the litigation charges, Starbucks experienced significant positive financial leverage (ROE > ROA) over this time period. ACT 5060 Appendix A Felo DuPont Analysis of ROA This allows us to analyze the two \"components\" of ROA Asset turnover x Return on Sales Helpful when assessing reasons for changes in ROA Can also be applied to ROE ACT 5060 Appendix A Felo DuPont Analysis of ROA ROA and ROE are both negatively impacted by the litigation charge last year. If this is removed, ROA and ROE both increased last year. The DuPont analysis shows that asset turnover decreased, but the return on sales increased. The increase on return on sales outweighed the decrease in asset turnover. In the current period, both decreased, leading to a decrease in ROA. ROE increased because of the positive financial leverage. ACT 5060 Appendix A Felo Stock Performance Is this stock appropriate for me? Growth investors vs. Income investors Book value per share Earnings per share Price earnings ratio Dividend yield Dividend payout ACT 5060 Appendix A Felo Stock Performance Assessment I would classify Starbucks as more of a growth stock. There is a substantial \"gap\" between book and market value. This indicates relatively high risk, meaning investors expect it to have relatively high growth. Although it has started paying dividends, they provide a relatively small yield. ACT 5060 Appendix A Felo Stock Performance (2) EPS, P/E ratio, and dividend payout ratios are skewed by the litigation charge last year. The past and \"adjusted\" P/E ratios indicate that the market was expecting Starbucks to grow significantly. As we see by the adjusted closing prices, it has grown quite significantly, although it did decrease this past year. This is likely due to the litigation, as the charge was not announced until after 9/29/13. The fact that Starbucks has increased its dividend payout ratio may indicate it is trying to \"shift\" into a hybrid stock (growth and income). ACT 5060 Appendix A Felo