Home Depot, Lowe's, and Wolseley: Financial Analysis of the Major Building Equipment Retailers

This assessment will evaluate different views of capital structure using Home Depot financial information from March 10, 2014. The evaluation will compare Home Depot to its largest competitor (Lowes) discussing similarities and differences. It will then provide examples supporting Modigliniani and Miller’s (MM) findings around the impact financing decisions have on a firms value.

Home Depot is the fastest growing retailer in the U.S. by some accounts. It has a fascinating history of innovation and entrepreneurship. The company had some difficulties in the mid-2000s that some attribute to cultural clashes. However, during this period the company was able to take full advantage of the housing boom. Yet when the bubble burst, Home Depot was forced to claim substantial losses. Despite these loses Home Depot has weathered the storm fairly well and is in prime position to take advantage of an economic recovery; if it ever comes.

The home improvement sector of the economy is large with two major players in the industry and with many smaller local and regional competitors. These two major competitors are Home Depot and Lowe’s. These two companies account for over $110 billion in total sales each year. Even though sales have gone down over the past few years due to the downturn in the economy they have not gone down nearly as much as home sales and this is due to more people deciding to do more home improvements to their own home then buying a new home. Both of these companies have been able to keep up sales and increase them year over year by improving current

A third of my life was spent in a family home in Elk Grove, California called Shadowbrook. More accurately, Shadowbrook is the name of the model of one of the cookie cutter homes by DR Horton, home construction company. This two-story and approximately 2,450 square feet single family home has four bedrooms and three bathrooms featuring a central heating and cooling system, fireplace, and tandem three car garage. Shadowbrook was built in 2003 where my family was fortunately the first owner of this structure housing my parents, myself, and my two sisters. Since Shadowbrook is a fairly new house, little transformation has been done to the home; most transformation of the house was applied to the landscaping of the lot of the house. One of the most memorable part of my life was the feeling and the process of moving into an actual house as I had lived in apartments for the better part of my life. Unfortunately, I gave very little thoughts about the house itself since any family house we would have moved in would still had made me delighted for it would still be a new change or an “upgrade” from my previous family residence. After a stumble of curiosity, I wanted to know what expectation I had when moving into this family home and does it follow a particular trend of the time.

A financial analysis will be conducted on Lowe’s Corporation (Low). I will focus on finance-related entities, ratios and how the company is performing. There will be several ratios discussed based on their relevancy to the company’s current financial conditions.

It should be noted, that 80% of HD’s current assets is in merchandise inventory. As such, Home Depot is dependent on selling its inventory to meet its cash obligations. This is not

The consolidated Statement of Earning or income statement, tells the user about the sales and expensed applied by the Home Deport during the fiscal year. An analysis of income statements shows a company with strong sales figures and the worth of up to $71 billion sales per year. Nevertheless, the one thing that is very noticeable is the substantial drop in sales from to Fiscal 2008 compared to previous years. Home Depot´s net sales in Fiscal have dropped from 25,997 to 23,990 (in the millions). In addition to the drop in sales, Home Depot had reported higher expenses throughout Fiscal 2008. The statements provides through information that is very helpful throughout the decision making process of the company. For example, upper management may determine that a struggling economy is the possible cause of the decrease in sales and it may not be the best time to introduce any new projects. Also, the company may decide to increase their credit programs for consumers with the intention to increase sales. In general, the company is strong, however the drop in sales and net earnings cannot warrant some cautions until the economy shows signs of improvement and the sales and net earnings continue to drop. The drop in sales and net earnings shows that even the strong companies are affected when the economy is not doing so well.

Home Depot's corporate- and business-level strategy is low cost differentiation. This strategy is explained as a combination of offering consumers low cost essentials as well as offering consumers unique or unusual products (Parnell, 2014).The Home Depot uses the idea of offering specialty merchandise to those do it yourself customers along with professionals in the industry. All items that relate to home building or home improvement are offered at a low cost value. Items are not priced with high mark up. Most are low-cost items that are affordable to the average consumer.

Examples include Lowe’s, Ace Hardware, Sears, 84 Lumber, Best Buy, Costco Wholesale, Menard, Northern Tool, Sherwin-Williams, Target, Wal-Mart, True Value Hardware and Lumber Liquidators. Through imitation and replication, principal rival Lowe’s, Inc. ($30.2B) has grown from a (1946) small family-owned North Carolina hardware store, to an international home improvement giant with over 1,700 retail outlets. Lowe’s Inc. ($30.2B) is now the premier challenger to Home Depot’s competitive advantage as these firms manifest duopoly characteristics in the US home improvement industry. According to the Data Monitor Group, the maximum capacity of the US home improvement market is 3,500 stores. With Home Depot Co. ($51.1B) and Lowe’s, Inc. ($30.2B) collectively operating at that level, both companies have begun to focus on international markets for future growth.

The Home Depot is committed to being a global company by enhancing direct relationships with quality manufacturers, and reinforcing the assurance in global suppliers to provide products that offer Home Depot customers value, innovation and quality. I plan to use articles, journals and the company’s website to gather the necessary information needed to complete this project.

RONA Inc is the largest Canadian distributor and retailer of hardware, home renovation and gardening products. They employ 30,000 people at more than 800 corporate, franchise and affiliate locations across Canada. Within the last year RONA has undergone significant changes, hiring a new CEO and choosing to close down several locations, so it is a very interesting period moving forward for the company. This report will outline RONA’s current financial position, current issues that may affect their position, and give a prediction as to the future performance of the company. It will also analyze several of RONA’s key financial ratios, and compare them to those of Home Depot, a major competitor in the industry.

The Home Depot is a large American big box retailer supplying construction and home improvement products, with+ over 2,100 retail stores in the US, Puerto Rico, The US Virgin Islands and Guam. The company headquarters is in Georgia Atlanta.

During fiscal 2013, Home Depot Inc. management maintained their focus on boosting their supply chain network and improving their operational management, inventory, and distribution and transportation productivity. This lead to an inventory turnover ratio of 4.6 times at the end of fiscal 2013 compared to 4.5 times at the end of fiscal 2012. In addition to taking disciplined capital allocation, they maintained focus on expense control, which gave higher returns and thus increased the Net Earnings and Diluted Earnings per Share. For, fiscal 2013 the company reported a Net Earnings of $5.4 billion and Diluted Earnings per Share of $3.76 compared to Net Earnings of $4.5 billion and Diluted Earnings per Share of $3.00 for the fiscal 2012. Net Sales increased to $78.8 billion for fiscal 2013 from $74.8 billion for fiscal 2012 i.e. an increase of 5.4%.

● According to exhibit 1 the Home Improvement market has been growing at a steady pace of about 3.5% for the past 5 years. A lot of this growth steams from the do it yourself consumer market which is the primary target for the Builders Square and Hechinger Co. merger. Although Home Depot and Lowe 's dominate the bulk of the home improvement market, only 6% of Home Depot’s sales come from building materials and related products compared to the combined 3.4% for Builder’s Square and Hechinger Co. As seen in exhibit 10, the Combined Projections for Proposed Builders Square - Hechinger Merger, Green projects an increased gross profit margin as well as EBITDA assuming a 2% growth rate for the combined firm. Their profits do struggle in the beginning due to an increasing amount of revenues lost to competitors along with their high count of closing stores. After year 3 the effects of competitor openings and store closings levels off with only a 1% change simulating what appears to be the end

Balance sheets and income statements are a snapshot of a company’s stability and financial situation. Combined the statements show the income, expenses, and stockholder’s equity in the company. These statements are often analyzed by financial institutions when a company comes to them needing a loan. Stockholders and other investors also look at these statements to make sure their investment will return a profit for them. This paper will look at four different companies and their balance sheets and income statements. The companies are Eastman Chemical Company, Covenant Transportation