Please review attached documents and answer the following question. Format should be 1 page and a half, doubled space in times new roman. What is your summary of this company?s financial condition?

Appendix A. The Home Depot Balance Sheet The Home Depot Inc Consolidated Balance Sheets amounts in millions, except share and per share data February 2, February 3, January, 29 2014 2013 2012 ASSETS Current Assets: Cash and Cash Equivalents Receivables, net Merchandise Inventories Other Current Assets Total Curret Assets Property and Equipment, at cost Less Accum Depreciation and Amortization Net Property and Equipment Goodwill Other Assets Total Assets LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excldg current installments Other Long-Term Liabilities Deferred Income Taxes Total Liabilities STOCKHOLDERS EQUITY Common stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Stockholders Equity Total Liabilities and Stockholders Equity 1,929 1,398 11,057 895 2,494 1,395 10,710 773 1,987 1,245 10,325 963 15,279 15,372 14,520 39,064 15,716 23,348 1,289 602 38,491 14,422 24,069 1,170 473 38,975 14,527 24,448 1,120 295 40,518 41,084 40,518 5,797 1,428 396 1,337 12 33 1,746 10,749 14,691 2,042 514 27,996 5,376 1,414 472 1,270 22 1,321 1,587 11,462 9,475 2,051 319 23,307 4,856 1,372 391 1,147 23 30 1,557 9,376 10,758 2,146 340 22,620 88 8,402 23,180 46 (19,194) 88 7,948 20,038 397 (10,694) 87 6,966 17,246 293 (6,694) 12,522 40,518 17,777 41,084 17,898 40,518 The Home Depot Income Statement The Home Depot Inc Consolidated Statement of Earnings amounts in millions, except per share data 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 Interest and Other, net February 2, February 3, January 29, 2014 2013 2012 78,812 51,422 27,390 74,754 48,912 25,842 70,395 46,133 24,262 16,597 1,627 18,224 9,166 16,508 1,568 18,076 7,766 16,028 1,573 17,601 6,661 -20 632 -67 545 7,221 2,686 4,535 1,499 3.03 1,511 3.00 -13 606 593 6,068 2,185 3,883 1,562 2.49 1,570 2.47 -12 711 699 EARNINGS BEFORE PROVISION FOR INCOME8,467 TAXES Provision for Income Taxes 3,082 NET EARNINGS 5,385 Weighted Average Common Shares 1,425 BASIC EARNINGS PER SHARE 3.78 Diluted Weighted Average Common Shares 1,434 DILUTED EATNINGS PER SHARE 3.76 The Home Depot Inc Financial Ratios The Home Depot Inc Consolidated Balance Sheets amounts in millions, except share and per share data February 2, 2014 The Home Depot Inc Consolidated Statement of Earnings February 3, 2013 January, 29 2012 ASSETS February 2, February 3, January 29, 2014 2013 2012 amounts in millions, except per share data NET SALES Current Assets: Cash and Cash Equivalents Receivables, net Merchandise Inventories Other Current Assets Total Curret Assets Property and Equipment, at cost Less Accum Depreciation and Amortization Net Property and Equipment Goodwill Other Assets 1,929 1,398 11,057 895 1,987 1,245 10,325 963 15,279 15,372 14,520 39,064 15,716 23,348 1,289 602 38,491 14,422 24,069 1,170 473 38,975 14,527 24,448 1,120 295 40,518 41,084 40,518 5,797 1,428 396 1,337 12 33 1,746 10,749 14,691 2,042 514 27,996 5,376 1,414 472 1,270 22 1,321 1,587 11,462 9,475 2,051 319 23,307 4,856 1,372 391 1,147 23 30 1,557 9,376 10,758 2,146 340 22,620 88 8,402 23,180 46 (19,194) 88 7,948 20,038 397 (10,694) 17,777 41,084 78,812 51,422 27,390 17,898 40,518 OPERATING INCOME Interest and Other (Income) Expense: Interest and Investment Income Interest Expense Other Interest and Other, net EARNINGS BEFORE PROVISION FOR INCOME TAXES Current Liabilities: Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excldg current installments Other Long-Term Liabilities Deferred Income Taxes Provision for Income Taxes Total Liabilities STOCKHOLDERS EQUITY Common stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Stockholders Equity Total Liabilities and Stockholders Equity NET EARNINGS Weighted Average Common Shares BASIC EARNINGS PER SHARE Diluted Weighted Average Common Shares DILUTED EATNINGS PER SHARE The Home Depot Financial Ratios Industry (Investing.com) HomeDepot Home Depot Home Depot January 2015 February 2, 2014 February 3, 2013 January 29, 2012 1.3 0.33 1.42 0.39 1.34 0.41 1.55 0.45 1.83 1.95 3.38 6.47 1.82 3.11 6.81 1.74 2.88 6.46 4.65 4.57 4.47 Ratio Liquidity Current Quick Asset Management Total assets turnover Fixed assets turnover Days sales outstanding (receivable turnover) Inventory turnover 50.62 4.29 Debt Management Debt to Assets ratio Times-interest-earned EBITDA Coverage Profitability Profit margin on sales (net profit margin) Basic Earning Power (BEP) Return on total assets (ROA) Return on common equity (ROE) Market Value Price/earnings (P/E) Market/book (M/B) Price/Cash Flow 36% 29.73 6.07% 18.90% 11.04% 25.51% 5.52% 16.44% 9.58% 21.70% 21.30 5.44 15.85 16.91 3.68 12.06 3.76 8.7873684211 4.9207017544 24.71 10.99 12.95 19.90 8.56 15.29 11.9 40.27 27% 12.29 4.78 6.83% 22.62% 13.29% 43.00% 4.10 26% 12.89 14.51 3.00 11.859239493 4.07 2.47 11.4583866837 3.49 Used to Calculate Market Value Ratios EPS Book value per share= total common equity shares outstanding Cash flow per share = price per share cash flow per share Stock price adjusted close (closest date available per yahoo finance) Jan 31 2014 Feb 1 2013 Jan 27 2012 75.23 64.54 42.11 74,754 48,912 25,842 70,395 46,133 24,262 16,597 1,627 18,224 9,166 Cost of Sales GROSS PROFIT Operating Expenses: Selling, General and Administrative Depreciation and Amortization Total Operating Expenses 87 6,966 17,246 293 (6,694) 12,522 40,518 Total Assets LIABILITIES AND STOCKHOLDERS EQUITY 2,494 1,395 10,710 773 16,508 1,568 18,076 7,766 16,028 1,573 17,601 6,661 -12 711 699 8,467 3,082 5,385 1,425 3.78 1,434 3.76 -20 632 -67 545 7,221 2,686 4,535 1,499 3.03 1,511 3.00 -13 606 593 6,068 2,185 3,883 1,562 2.49 1,570 2.47 The Home Depot Inc Common Size Balance Sheets amounts in millions, except share and per share data February 2, 2014 2014 February 3, 2013 January, 29 2012 Percentages 2013 Percentages 2012 Percentages ASSETS Current Assets: Cash and Cash Equivalents Receivables, net Merchandise Inventories Other Current Assets Total Curret Assets Property and Equipment, at cost Less Accum Depreciation and Amortization Net Property and Equipment Goodwill Other Assets Total Assets LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts Payable Accrued Salaries and Related Expenses Sales Taxes Payable Deferred Revenue Income Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excldg current installments Other Long-Term Liabilities Deferred Income Taxes Total Liabilities STOCKHOLDERS EQUITY Common stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Stockholders Equity Total Liabilities and Stockholders Equity 1,929 1,398 11,057 895 40,518 4.76% 3.45% 27.29% 2.21% 37.71% 96.41% 38.79% 57.62% 3.18% 1.49% 100.00% 5,797 1,428 396 1,337 12 33 1,746 10,749 14,691 2,042 514 27,996 88 8,402 23,180 46 (19,194) 15,279 39,064 15,716 23,348 1,289 602 12,522 40,518 2,494 1,395 10,710 773 41,084 6.07% 3.40% 26.07% 1.88% 37.42% 93.69% 35.10% 58.58% 2.85% 1.15% 100.00% 14.31% 3.52% 0.98% 3.30% 0.03% 0.08% 4.31% 26.53% 36.26% 5.04% 1.27% 69.10% 5,376 1,414 472 1,270 22 1,321 1,587 11,462 9,475 2,051 319 23,307 0.22% 20.74% 57.21% 0.11% #VALUE! 30.90% 100.00% 88 7,948 20,038 397 (10,694) 15,372 38,491 14,422 24,069 1,170 473 17,777 41,084 1,987 1,245 10,325 963 40,518 4.90% 3.07% 25.48% 2.38% 35.84% 96.19% 35.85% 60.34% 2.76% 0.73% 100.00% 13.09% 3.44% 1.15% 3.09% 0.05% 3.22% 3.86% 27.90% 23.06% 4.99% 0.78% 56.73% 4,856 1,372 391 1,147 23 30 1,557 9,376 10,758 2,146 340 22,620 11.98% 3.39% 0.97% 2.83% 0.06% 0.07% 3.84% 23.14% 26.55% 5.30% 0.84% 55.83% 0.21% 19.35% 48.77% 0.97% #VALUE! 43.27% 100.00% 87 6,966 17,246 293 (6,694) 0.21% 17.19% 42.56% 0.72% #VALUE! 44.17% 100.00% 14,520 38,975 14,527 24,448 1,120 295 17,898 40,518 The Home Depot Inc Common Size Income Statement amounts in millions, except per share data 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 Interest and Other, net EARNINGS BEFORE PROVISION FOR INCOME TAXES Provision for Income Taxes NET EARNINGS Weighted Average Common Shares BASIC EARNINGS PER SHARE Diluted Weighted Average Common Shares DILUTED EATNINGS PER SHARE February 2, 2014 February 3, 2014 Percentages 2013 2013 January 29, 2012 Percentages 2012 Percentages 78,812 51,422 27,390 100.00% 65.25% 34.75% 74,754 48,912 25,842 100.00% 65.43% 34.57% 70,395 46,133 24,262 100.00% 65.53% 34.47% 16,597 1,627 18,224 9,166 21.06% 2.06% 23.12% 11.63% 16,508 1,568 18,076 7,766 22.08% 2.10% 24.18% 10.39% 16,028 1,573 17,601 6,661 22.77% 2.23% 25.00% 9.46% -12 711 0 699 8,467 3,082 5,385 1,425 3.78 1,434 3.76 -0.02% 0.90% 0.00% 0.89% 10.74% 3.91% 6.83% 1.81% 0.00% 1.82% 0.00% -20 632 -67 545 7,221 2,686 4,535 1,499 3.03 1,511 3.00 -0.03% 0.85% -0.09% 0.73% 9.66% 3.59% 6.07% 2.01% 0.00% 2.02% 0.00% -13 606 0 593 6,068 2,185 3,883 1,562 2.49 1,570 2.47 -0.02% 0.86% 0.00% 0.84% 8.62% 3.10% 5.52% 2.22% 0.00% 2.23% 0.00% The DuPont equation is used by investors to measure performance in how their managerial actions and decisions affect and interact with a firm's profitability, asset efficiency, and financial leverage in determining the company's return on equity (Brigham and Ehrhardt, 2014, pg. 115). The DuPont equation is ROE equals (Net income/sales) x (Sales/Total assets) x (Total assets/common equity). The DuPont equation let's company's and investors analyze what is possibly driving the ROE. For example if the ROE is driven up because there a high net profit margin or asset turnover it usually leads to investors showing a positive response to that company. If the DuPont analysis is showing a high equity multiplier than it usually leads to the company giving the perception of being more risky (Brigham and Ehrhardt, 2014). When applying the DuPont equation to Home Depot for 2012, 2013, and 2014, the company's ROE is respectively $21.70%, 25.51%, and 43%. This illustrates that if profits were the only factor, than Home Depot's ROE show a relatively good increase from 5.52% in 2012 to 6.83% in 2014. If asset turnover was the only factor then Home Depot has increased again over the three years. This illustrates that in 2012 Home Depot was generating $1.74 for every dollar in sales whereas in 2014 Home Depot showed a $0.21 increase to generating $1.95 for every dollar in sales. In 2014 common equity decreased. However the ratio of total assets to common equity increased. This illustrates that in 2014 Home Depot financed its assets with less equity as it increased from 2.26 in 2012 to 3.24 in 2014. The equity multiplier indicates that Home Depot's ROE in 2014 received a greater boost from its multiplier than in previous years. The company however is illustrating a high total asset turnover which means they are effectively and efficiently utilizing their assets and could be counted as a strength of the company. The equation also illustrates a higher equity multiplier for 2014 as indicated above, could be a great weakness for Home Depot because they are viewed as being risky to potential investors. Overall Home Depot illustrates an increase of 21.30% in ROE since 2012. This shows that Home Depot slightly increased from 2012 to 2013 but took a rather large jump from 2013 to 2014. The profit margin was also the highest in 2014 however the increase in ROE could be due to common equity decreasing, thus creating a greater equity multiplier. Net Income Sales Total Assets Common Equity Profit Margin (Net Income/Sales) Total Asset Turnover (Sales /Total assets) Equity Multiplier (Total assets/Common equity) DuPont Extended-ROE 2012 $3,883 $70,395 $40,518 $17,898 2013 $4,535 $74,754 $41,084 $17,777 2014 $5,385 $78,812 $40,518 $12,522 5.52% 1.74 2.26 21.70% 6.07% 1.82 2.31 25.51% 6.83% 1.95 3.24 43.00% 1. Rd (1-T) = After-tax cost of debt Before tax cost of long-term debt: 5.875% coupon rate, fixed rate, semi-annual basis Payment from 06/16/2007 until 12/16/2036 FY 2014 FY 2013 FY 2012 Interest Expense 711 632 606 Current Installments of Long-term debt 33 1321 30 Long-term debt, excl current installments 14691 9475 10758 Debt 14724 10796 10788 Interest % 4.8% 5.9% 5.6% Income Tax Expense Profit before taxes Income tax % 3082 8467 2686 7221 2185 6068 36.40% 37.20% 36.01% 3.1% 3.7% Source: Coupon rate for long-term debt from Morningstar.com 3.6% After tax cost of debt (rd (1-T))= 2. Rs = Cost of Common Stock Using the Capital Asset Pricing Model (CAPM) to estimate the cost of Common Stock rs = risk-free rate + (Market risk premium) (Beta) = rRF + (RPM) bi (Recall that: RPM is the expected return on the market minus the risk-free rate.) rRF = Yield on 10-year T-bond RPM = Market risk premium bi = Beta for Stock i rRF = RPM = bi = rs = FY 2014 2.577% 4.62% FY 2013 1.957% 4.20% FY 2012 1.823% 4.10% 1.16 7.94% 1.10 6.58% 0.73 4.82% Source: Investing.com (U.S. 10-Year Bond Yield Historical Data) Since the majority of the HD fiscal year is the preceding year, I used the Historical Risk premiums from 2013, 2012, and 2011 ("Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current") See tab "Calculating historical beta", with historical prices retrieved from Finance.yahoo Discounted Cash Flow (DCF) Approach, also known as Dividend-Yield-Plus-Growth Rate, for estimating the cost of equity FY 2014 FY 2013 FY 2012 P0 = 74.83 65.69 44.64 Ending price of stock on Feb. 3, 2014, Feb. 4, 2013, and Feb. 2, 2012, historical prices retrieved from Finance.yahoo D1 = 1.88 1.56 1.16 Most recent annual dividends 5-year annual growth rate, Source: http://www.bloomberg.com/quote/eat:US g= 15.87% 15.87% 15.87% rs = rs = D1 P0 + g rs = $1.88 $74.83 + 15.87% 18.38% 18.24% 18.47% 3. Rps = Cost of Preferred Stock The Home Depot does not issue preferred stock, so we do not need to factor in the cost of preferred stock Source: Finance.yahoo.com Date Open 2/3/2014 1/2/2014 12/2/2013 11/1/2013 10/1/2013 9/3/2013 8/1/2013 7/1/2013 6/3/2013 5/1/2013 4/1/2013 3/1/2013 2/1/2013 1/2/2013 12/3/2012 11/1/2012 10/1/2012 9/4/2012 8/1/2012 7/2/2012 6/1/2012 5/1/2012 4/2/2012 3/1/2012 2/1/2012 1/3/2012 12/1/2011 11/1/2011 10/3/2011 9/1/2011 8/1/2011 7/1/2011 6/1/2011 5/2/2011 4/1/2011 3/1/2011 2/1/2011 1/3/2011 12/1/2010 11/1/2010 10/1/2010 9/1/2010 8/2/2010 7/1/2010 6/1/2010 5/3/2010 4/1/2010 3/1/2010 2/2/2010 Month February 2014 January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 Historical Prices for HD - February 2, 2010 to February 3, 2014 High Low Close Volume Adj Close 76.64 76.73 73.96 76.45 9535200 74.83 82.11 82.57 75.85 76.85 7030100 75.23 80.45 82.47 77.7 82.34 6322900 80.6 77.98 82.27 74.78 80.67 7105100 78.58 75.88 78.6 73.74 77.89 7464200 75.87 74.83 78.81 72.21 75.85 7684300 73.88 79.52 80.5 73.11 74.49 7974500 72.18 77.63 81.23 76.63 79.03 5953500 76.58 78.65 79.68 72.41 77.47 9501600 75.07 73.18 81.56 72.53 78.66 7527300 75.84 69.51 74.59 69.51 73.35 7356800 70.72 68.38 71.45 68.09 69.78 6745800 67.28 67.62 69.19 63.82 68.5 8009500 65.69 63.57 68.15 62.38 66.92 6354300 64.17 65 65.92 60.21 61.85 7560300 59.31 61.95 65.23 60.31 65.07 8929300 62.4 60.77 63.2 58.75 61.38 10070000 58.59 56.79 60.58 56.37 60.37 8017900 57.63 52.31 57.18 51.21 56.75 8515300 54.17 52.96 54.28 49.77 52.18 10321500 49.56 48.85 53.28 47.75 52.99 14144500 50.33 51.93 52.88 46.37 49.34 13656500 46.86 50.1 52.39 49.36 51.79 9152200 48.9 47.53 50.42 46.12 50.31 9348900 47.5 44.69 48.07 44.3 47.57 10049800 44.64 42.41 45.5 41.92 44.39 10350100 41.65 38.86 42.47 38.79 42.04 11208800 39.45 34.74 39.79 34.58 39.22 11982000 36.8 32.8 37.65 31.03 35.8 12014000 33.33 33.53 35.33 31.08 32.87 13881800 30.6 35.07 35.07 28.13 33.38 20374300 31.08 36.29 37.25 34.63 34.93 10608200 32.28 36.12 36.31 33.41 36.22 12707500 33.48 37.44 37.94 35.91 36.28 10216900 33.28 37.12 38.51 36.94 37.15 10434900 34.08 37.14 37.86 35.43 37.06 10203500 34 36.94 39.38 36.38 37.47 9708600 34.14 35.2 38.12 34.07 36.77 12029700 33.5 30.6 35.49 30.6 35.06 11250700 31.94 31 32.82 29.98 30.21 14185900 27.53 31.81 32.14 30.18 30.9 12280800 27.94 28.08 32.23 28.06 31.68 11734700 28.64 28.82 29.24 27.1 27.82 13250000 25.15 28.41 29.37 26.62 28.51 18580400 25.56 33.42 34.17 27.99 28.07 21183100 25.16 35.39 36.3 32.07 33.86 26980600 30.14 32.41 37.03 32.16 35.23 18420800 31.36 31.24 32.98 31.09 32.35 14004200 28.8 28.39 31.45 27.53 31.2 19717000 27.57 Market Level (S&P 500 Index) at Month EndMarket Level (S&P 500 Index) at Month EndMarket Level (S&P 500 Index) at Market's Month EndMarket ReturnMarket's Level ReturnMarket's (S&P 500 Index) at ReturnMarket's Month End Return 1,797.02 0.8% 1,782.59 -3.6% 1,848.36 2.4% 1,805.81 2.8% 1,756.54 4.5% 1,681.55 3.0% 1,632.97 -3.1% 1,685.73 4.9% 1,606.28 -1.5% 1,630.74 2.1% 1,597.57 1.8% 1,569.19 3.6% 1,514.68 1.1% 1,498.11 5.0% 1,426.19 0.7% 1,416.18 0.3% 1,412.16 -2.0% 1,440.67 2.4% 1,406.58 2.0% 1,379.32 1.3% 1,362.16 4.0% 1,310.33 -6.3% 1,397.91 -0.7% 1,408.47 3.1% 1,365.68 4.1% 1,312.41 4.4% 1,257.60 0.9% 1,246.96 -0.5% 1,253.30 10.8% 1,131.42 -7.2% 1,218.89 -5.7% 1,292.28 -2.1% 1,320.64 -1.8% 1,345.20 -1.4% 1,363.61 2.8% 1,325.83 -0.1% 1,327.22 3.2% 1,286.12 2.3% 1,257.64 6.5% 1,180.55 -0.2% 1,183.26 3.7% 1,141.20 8.8% 1,049.33 -4.7% 1,101.60 6.9% 1,030.71 -5.4% 1,089.41 -8.2% 1,186.69 1.5% 1,169.43 5.9% 1,104.49 NA FY 2014 Average return (annual): Standard deviation (annual): Minimum monthly return: Maximum monthly return: Correlation between HD and the market: Beta: bGE = rGE,M (sGE / sM) Beta (using the SLOPE function): Intercept (using the INTERCEPT function): R2 (using the RSQ function): FY 2013 Average return (annual): Standard deviation (annual): Minimum monthly return: Maximum monthly return: Correlation between HD and the market: Beta: bGE = rGE,M (sGE / sM) Beta (using the SLOPE function): Intercept (using the INTERCEPT function): R2 (using the RSQ function): FY 2012 Average return (annual): Standard deviation (annual): Minimum monthly return: Maximum monthly return: Correlation between HD and the market: Beta: bGE = rGE,M (sGE / sM) Beta (using the SLOPE function): Intercept (using the INTERCEPT function): R2 (using the RSQ function): 17.6% 9.7% -3.6% 4.9% HD Adjusted Stock Price at Month End $74.83 $75.23 $80.60 $78.58 $75.87 $73.88 $72.18 $76.58 $75.07 $75.84 $70.72 $67.28 $65.69 $64.17 $59.31 $62.40 $58.59 $57.63 $54.17 $49.56 $50.33 $46.86 $48.90 $47.50 $44.64 $41.65 $39.45 $36.80 $33.33 $30.60 $31.08 $32.28 $33.48 $33.28 $34.08 $34.00 $34.14 $33.50 $31.94 $27.53 $27.94 $28.64 $25.15 $25.56 $25.16 $30.14 $31.36 $28.80 $27.57 HD's ReturnHD's ReturnHD's ReturnHD's Return -0.5% -6.7% 2.6% 3.6% 2.7% 2.4% -5.7% 2.0% -1.0% 7.2% 5.1% 2.4% 2.4% 8.2% -5.0% 6.5% 1.7% 6.4% 9.3% -1.5% 7.4% -4.2% 2.9% 6.4% 7.2% 5.6% 7.2% 10.4% 8.9% -1.5% -3.7% -3.6% 0.6% -2.3% 0.2% -0.4% 1.9% 4.9% 16.0% -1.5% -2.4% 13.9% -1.6% 1.6% -16.5% -3.9% 8.9% 4.5% NA 14.0% 14.1% -6.7% 7.2% 0.80 1.16 1.16 -0.01 0.63 10.9% 10.3% -6.3% 5.0% 40.5% 16.7% -5.0% 9.3% 0.68 1.10 1.10 0.02 0.46 37.1% 16.6% -7.2% 10.8% 28.5% 17.8% -3.7% 10.4% 0.68 0.73 0.73 0.02 0.46 Date 2/3/2014 1/2/2014 12/2/2013 11/1/2013 10/1/2013 9/3/2013 8/1/2013 7/1/2013 6/3/2013 5/1/2013 4/1/2013 3/1/2013 2/1/2013 1/2/2013 12/3/2012 11/1/2012 10/1/2012 9/4/2012 8/1/2012 7/2/2012 6/1/2012 5/1/2012 4/2/2012 3/1/2012 2/1/2012 1/3/2012 12/1/2011 11/1/2011 10/3/2011 9/1/2011 8/1/2011 7/1/2011 6/1/2011 5/2/2011 4/1/2011 3/1/2011 2/1/2011 1/3/2011 12/1/2010 11/1/2010 10/1/2010 9/1/2010 8/2/2010 7/1/2010 6/1/2010 5/3/2010 4/1/2010 3/1/2010 2/1/2010 Historical Prices for S&P 500 Index - February 2, 2010 to February 3, 2014 Open High Low Close Volume Adj Close 1782.68 1798.03 1737.92 1797.02 4831226000 1797.02 1845.86 1850.84 1770.45 1782.59 3806266600 1782.59 1806.55 1849.44 1767.99 1848.36 3203412300 1848.36 1758.7 1813.55 1746.2 1805.81 3261324500 1805.81 1682.41 1775.22 1646.47 1756.54 3498866500 1756.54 1635.95 1729.86 1633.41 1681.55 3474152000 1681.55 1689.42 1709.67 1627.47 1632.97 3069868600 1632.97 1609.78 1698.78 1604.57 1685.73 3270645900 1685.73 1631.71 1654.19 1560.33 1606.28 3996199000 1606.28 1597.55 1687.18 1581.28 1630.74 3661220400 1630.74 1569.18 1597.57 1536.03 1597.57 3674685000 1597.57 1514.68 1570.28 1501.48 1569.19 3591577500 1569.19 1498.11 1530.94 1485.01 1514.68 3851884200 1514.68 1426.19 1509.94 1426.19 1498.11 3802304200 1498.11 1416.34 1448 1398.11 1426.19 3479625500 1426.19 1412.2 1434.27 1343.35 1416.18 3593110000 1416.18 1440.9 1470.96 1403.28 1412.16 3587115700 1412.16 1406.54 1474.51 1396.56 1440.67 3857553100 1440.67 1379.32 1426.68 1354.65 1406.58 3183567800 1406.58 1362.33 1391.74 1325.41 1379.32 3663113300 1379.32 1309.87 1363.46 1266.74 1362.16 4103472300 1362.16 1397.86 1415.32 1291.98 1310.33 4158095900 1310.33 1408.47 1422.38 1357.38 1397.91 3916786000 1397.91 1365.9 1419.15 1340.03 1408.47 3980752200 1408.47 1312.45 1378.04 1312.45 1365.68 4143404000 1365.68 1258.86 1333.47 1258.86 1312.41 4190155500 1312.41 1246.91 1269.37 1202.37 1257.6 3667346600 1257.6 1251 1277.55 1158.66 1246.96 4289379000 1246.96 1131.21 1292.66 1074.77 1253.3 4874946600 1253.3 1219.12 1229.29 1114.22 1131.42 5104933800 1131.42 1292.59 1307.38 1101.54 1218.89 4942913400 1218.89 1320.64 1356.48 1282.86 1292.28 4308168000 1292.28 1345.2 1345.2 1258.07 1320.64 4105601300 1320.64 1365.21 1370.58 1311.8 1345.2 4114534200 1345.2 1329.48 1364.56 1294.7 1363.61 4042194000 1363.61 1328.64 1332.28 1249.05 1325.83 4046691700 1325.83 1289.14 1344.07 1289.14 1327.22 3182974200 1327.22 1257.62 1302.67 1257.62 1286.12 4816605000 1286.12 1186.6 1262.6 1186.6 1257.64 3762922700 1257.64 1185.71 1227.08 1173 1180.55 4354084200 1180.55 1143.49 1196.14 1131.87 1183.26 4432102300 1183.26 1049.72 1157.16 1049.72 1141.2 3993981400 1141.2 1107.53 1129.24 1039.7 1049.33 4080773600 1049.33 1031.1 1120.95 1010.91 1101.6 4704026600 1101.6 1087.3 1131.23 1028.33 1030.71 5235174000 1030.71 1188.58 1205.13 1040.78 1089.41 6626699400 1089.41 1171.23 1219.8 1170.69 1186.69 5847150900 1186.69 1105.36 1180.69 1105.36 1169.43 4702951700 1169.43 1073.89 1112.42 1044.5 1104.49 4658238400 1104.49 ($ in millions) 2013 2012 2011 Interest Expense Current Installments of Long-term debt Long-term debt, excl current installments Debt Interest % 711 33 14691 14724 4.8% 632 1321 9475 10796 5.9% 606 30 10758 10788 5.6% Income Tax Expense Profit before taxes Income tax % 3082 8467 36.4% 2686 7221 37.2% 2185 6068 36.0% After tax cost of debt 3.1% 3.7% 3.6% Cost of debt Cost of equity Risk free rate of return Market return (average of last 10 years) Beta 1.98% http://data.cnbc.com/quotes/US10Y 7.23% http://www.1stock1.com/1stock1_141.htm 1.03 https://www.google.com/finance?q=NYSE%3AHD&ei=O6LbVOC5DOauiAL-r4CoBg Cost of equity 7.39% Weights Debt Equity Total Capital 14724 12522 27246 10796 17777 28573 10788 17898 28686 Weight of debt Weight of equity 54.0% 46.0% 37.8% 62.2% 37.6% 62.4% 5.1% 6.0% 6.0% WACC Forward looking WACC is average of last three years 5.7% RUNNING HEAD: FINANCIAL ANALYSIS Financial Analysis The Home Depot Webster University FINC 5880 Colleen Essid Joel Flores Stephanie Fraterelli Brittany Hannah 2 FINANCIAL ANALYSIS Table of Contents Company Overview: Who is The Home Depot? Provided by Joel Flores........................................................................ 2-3 Collection of Stock Data: (Part 4) Provided by Colleen Essid....................................................................3-6 Financial Ratios and Analysis: (Part 5) Provided by Stephanie Fraterelli and Brittany Hannah..................................6-13 Financial Ratios to accompany the analysis ..............................Appendix Common size analysis: (Part 6) Provided by Brittany Hannah..............................................................13-14 Common size percentages to accompany the analysis..................Appendix Dupont Equation analysis: (Part 7) Provided by Stephanie Fraterelli.....................................................Appendix Calculations using the DCF method and CAPM method: (Part 8) Provided by: Colleen Essid...........................................................Appendix WACC Calculations: (Part 9) Provided by: Joel Flores..............................................................Appendix References ..................................................................................................15 Appendix A. Excel Spreadsheet: Tab 1 - The Home Depot Consolidated Balance Sheets Tab 2 - The Home Depot Consolidated Statement of Earnings Tab 3 - The Home Depot Financial Ratios Tab 4 - Common Size Balance Sheets and Common Size Income Statement Tab 5 - DuPont Equation Tab 6 - Cost of Capital Components Tab 7 - Calculating Historical Beta Tab 8 - WACC FINANCIAL ANALYSIS 3 Company Overview: Who is The Home Depot? This financial analysis consists of analysing The Home Depot Inc; as well as comparing it to its industry peers. The Home Depot is the world's largest home improvement retailer, dealing in the business of home improvement and construction products and services. It also ranks at 33 as a Fortune 500 Company. With a history that originates from its first stores in Atlanta, Georgia to a now global presenceThe Home Depot Inc. represents an American dream come true. It was founded in 1978 by Bernard Marcus, Arthur Blank, Ron Brill, and Pat Farrah. On November 1, 2014, Craig Menear replaced CEO Frank Blake. An important concept created by the founders was the idea of giving the power to the individual to do projects themselves. Throughout the years and change of ownership, this same concept of educating and empowering customers stayed at the forefront of the business model; which is why they are currently in the position as an industry leader. It operates many mega stores across the United States, Canada, and Mexico. The headquarters of the company is located at the Atlanta Store Support Center in Cobb County, Georgia. Home Depot stores average 105,000 ft2 in size and are organized warehouse-style, stocking a large range of supplies. Home Depot's two largest stores are located in Union, New Jersey, which encompasses 217,000 ft 2 of space, and in Anaheim Hills, California where it encompasses 204,000 ft 2. The board of directors of the company consists of nine directors with eight of them being independent directors. The board consists of the following directors: Gregory Brenneman, David Batchelder, Frank Blake, Bonnie Hill, Duane Ackerman, Albert Carey, Armando Codina, Ari Bousbib and Karen Katen. As their marketing campaign, the company introduced the slogan "More saving. More doing" in March 2009 replacing its previous slogan "You can do it. We can help", which was introduced in 2003. Other slogans used in the past were: "The Home Depot, Low prices are just the beginning" in the early 1990's. "When you're at the Home Depot, You'll feel right at home" in the late 1990's, and "The Home Depot: First In Home Improvement!" from 1999-2003. 4 FINANCIAL ANALYSIS The company carries exclusively several major brands namely BEHR Paint, Chem-Dry, GAF ROOFING, Rheem, Homelite, Martha Stewart Living, Home Decorators Collection, Ryobi and Ridgid, Thomasville cabinetry, American Woodmark cabinetry, Hampton Bay, and Commercial Electric. Additionally, the retailer has its own house brands like HDX Glacier Bay, Husky, and Workforce. In 2006, Home Depot started fuel centers at some of its stores. The fuel centers sell beer, hot food, snacks along with providing diesel fuel and gas. The fuel centers offer car washes, large enough to accommodate full-size pickup trucks and other large commercial vehicles. Collection of Stock Data The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index.1 Current Stock Price HD (Common Stock) Price 105.44 Volume 3,044,030 Change % Change - 0.92 0.86% The Home Depot stock trades under the stock symbol \"HD\" on the New York Stock Exchange (NYSE). Its common stock has a par value of $0.05. As of close of trading on January 30, 2015, the stock price was $104.42 per share (http://finance.yahoo.com/q?s=HD&fr=uh3_finance_web&uhb=uhb2). It has been listed on the NYSE since April 19, 1984. Its first dividend payout was on June 22, 1987, and, according to its 2013 annual report, it \"has paid cash dividends during each subsequent quarter\" (\"The Home Depot Annual Report 2013,\" 14). The last two fiscal years filed (2013 and 2012) reflect the following quarterly earnings per share (\"The Home Depot Annual Report 2013,\" 14): 1 5 FINANCIAL ANALYSIS Price Range Fiscal Year 2013 First Quarter Ended May 5, 2013 Second Quarter Ended August 4, 2013 Third Quarter Ended November 3, 2013 Fourth Quarter Ended February 2, 2014 Fiscal Year 2012 First Quarter Ended April 29, 2012 Second Quarter Ended July 29, 2012 Third Quarter Ended October 28, 2012 Fourth Quarter Ended February 3, 2013 Cash Dividends Declared High $74.00 $80.54 $80.05 $82.34 Low $63.92 $73.51 $72.70 $75.37 $0.39 $0.39 $0.39 $0.47 $52.03 $53.71 $63.20 $67.82 $44.39 $47.02 $51.39 $60.65 $0.29 $0.29 $0.29 $0.39 The weighted average common shares at the end of fiscal years 2013, 2012, and 2011 were 1.425 million, 1.499 million, and 1.562 million, respectively (\"The Home Depot Annual Report 2013,\" 49). In the first quarter of 2013, The Home Depot authorized a share repurchase program amounting to a $17.0 billion share repurchase (\"The Home Depot Annual Report 2013,\" 16), and at the end of fiscal 2013, it had repurchased $8.5 billion of common stock. It also entered into Accelerated Share Repurchase agreements (ASRs) with third-party financial institutions to repurchase $6.2 billion of common stock (totaling 81 million shares), twice the amount it had repurchased in fiscal 2012 ($3.05 billion) (\"The Home Depot Annual Report 2013,\" 42-43). It had issued 1.761 billion shares at February 2, 2014 and 1.754 billion shares at February 3, 2013, with 1.380 billion shares outstanding at February 2, 2014 and 1.484 billion shares at February 3, 2013, indicative of the stock repurchase program it initiated in 2013. It had used cash for financing activities to repurchase common stock of up to $8.546 billion in Fiscal year 2013, with proceeds from sales of common stock equaling $241 million. It paid out a total of $2.243 billion in cash dividends in Fiscal year 2013. The Home Depot has a stable dividend payout during the year, with an increased dividend year on year (using data since 2000). The dividend rose from $0.04 to $0.05 in 2002 and continued to increase at a rate of $0.01-$0.015 from 2002 until 2005. From 2007, the dividend nearly doubled, to $0.225, which FINANCIAL ANALYSIS 6 remained consistent until 2010, when it increased to $0.23625, to $0.25 in 2011, $0.29 in 2012, $0.39 in 2013, and $0.47 in 2014. The Home Depot has an employee stock plan: it had issued 11 million shares under employee stock plans by January 30, 2011, 21 million shares by January 29, 2012, and 7 million by February 3, 2013, for an accumulated balance of 1.761 billion shares by February 2, 2014. Stock-based compensation is an integral part of the overall employee compensation package. According to the 2013 Annual Statement, \"The per share weighted average fair value of stock options granted during fiscal 2013, 2012 and 2011 was $13.10, $9.86 and $7.42, respectively\" (\"The Home Depot Annual Report 2013,\" 38). These stock plans were amended and restated in 2005 and 1997 as the 2005 Omnibus Stock Incentive Plan and the 1997 Omnibus Stock Incentive Plan, respectively \"2005 Plan\" and \"1997 Plan\" ((The Home Depot Annual Report 2013,\