Question

Look up and perform a side by side comparison of the 9 performance criteria for Home Depot (HD) and Lowe's (LOW). Make a chart highlighting the information for both companies. Analyze the data from the two companies and briefly describe your findings. Which company is the strongest and why?

• Current Ratio
• Acid-Test Ratio
• Inventory Turnover
• Return on Assets
• Operating Profit Margin
• Debt Ratio
• Return on Equity
• Price/Earning Ratio
• Price/Book Ratio

Answer 1

Both home depot and Lowe are the leaders in the interior and home furnishing sector. In order to have a better look into their financial performance , the following 9 performance metrics of the companies have been analysed

No	Performance criteria	HOME DEPOT	LOWE's
1	Current Ratio	1.3	1.06
2	Acid test ratio	0.74	0.65
3	Inventory turnover	5.1	4.26
4	RoA	20.97	12.9
5	Op Profit margin	15.94	20.25
6	Debt ratio	0.62	5.66
7	RoE	152.2	217.25
8	PE Ratio	25.77	22.16
9	P/B ratio	228	29.88

The description of the following comparison

No	Performance criteria	Description
1	Current Ratio	· The current ratio is seen to be higher for the home depot , as it is a relatively new company than lowe and entered later. So it has high amount of current obligation to meet and in order to do that the current ratio is kept higher of HD
2	Acid test ratio	· The quick ratio is similarly a bit higher for home depot due to large amount of cash holdings for the working capital management of the firm
3	Inventory turnover	· Inventory turnover of home depot is higher than that of lowe . hence it is showing a better sales of the company with higher inventory turnover per peiod
4	RoA	· The roa for HD is much higher than that of Lowe s . Higher Net profits from the operations to the assets held by by company can be seen . · This shows an effective asset utilization
5	Op Profit margin	· Operating profit margin of Lowe is better than that of Home depots due to additional expenditures in the HD in setting up their own logistics line for future business expansion.
6	Debt ratio	· The debt ratio have stabilized for HD over the period of time and at present debt is only about half of the total assets held by the company . · Lowe however has a higher debt and the company is using higher financial leverage in its operations · Lowes profits are hence exposed to business risks due to effects of high leverage in the company
7	RoE	· Both this companies have high RoE as the proportion of equity is low compare to the Net profits achieved by the company . Hence as the equity size is small , the RoE is higher . · Lowe has a better RoE
8	PE Ratio	· The PE ratio of Home depot is higher showing investors are more interested to pay higher amount in the price of share relative of the per dollars Earnings per share of the company . · Hence HD has higher aggressive growth potential
9	P/B ratio	· The PB valuation metrics shows that Home Depot is relatively overvalued compared to the book value entered in its books , whereas lowe is correctly valued as per the industry standard pb ratio in home and furnishing industry

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