Question

Interpret these Financial liquidity Ratios for Home Depot and Lowes over 2017-2019 .Identify any trends . answer question with analytical response

Account Payable turnover ratio:

Home Depot

2017		8.9
2018		9.19
2019		9.16

Lowes

2017	6.4
2018	6.86
2019	5.85

Quick Ratio:

Home Depot

2017	0.37
2018	0.38
2019	0.28

Lowes

2017	0.13
2018	0.11
2019	0.12

Current Ratio:

Home Depot

2017	1.25
2018	1.17
2019	1.11

Lowes

2017	1.00
2018	1.06
2019	0.98

Answer 1

Ans) Account payable turnover ratio analysis: This ratio tells that the how fast company is paying its payable to its stakeholders. Higher value shows that company is taking more time to pay to its stakeholder which is in some way is a good sign because in that case company is utilizing the cash of its supplier or other stakeholders and it reduces the cash conversion cycle.

By looking the data its seems Home Depot is performing well with the account payable since its value is higher.

Quick Ratio: It mainly measure the liquidity of any company which tells whether company has enough money to fulfill its liabilities. Quick ratio is given by the formula of cash + marketable securities divided by total liabilities. Higher the value is better for the company and its tells company is liquid enough to pay its current obligations.

By looking into data we can say that Home Depot's liquidity is better than Lowes though it is decreasing over the year but still it is more than Lowes quick ratio which tells that company is more liquid.

Current Ratio: It is again a liquidity ratio which measure the company's liquidity it is the ratio of current asset divided by current liabilities. Higher the value better it is company expect this values should be greater than one because in that way company can fulfill all its current obligations in short term and be solvent.

By looking into data we can say that Home Depot's liquidity is better than Lowes though it is decreasing over the year but still it is more than Lowes current ratio which tells that company is more liquid and able to fulfill its obligation in short run. Not only that Home Depot current ratio is always greater than one across the year but in case of Lowes it reduces to less than one in year 2019 which is a serious issue and Lowes need to get more cash by taking long term liabilities or decrease current liabilities to make this ratio more than one.