Question

2. Make a two-paragraph opinion about the financial situation Lowes. Use some of the ratios to support your points.

Lowes ratios.

Ratios	2020	2019
Current ratio	1.01	0.98
Quick ratio	0.14	0.11
Cash Ratio	0.28	0.28
Total Debt/Total Assets	0.95	0.95
Debt/Equity ratio	19.02	8.47
Inventory Turnover	3.73	3.85
Days' sales in inventory (In Days)	97.76	94.72
Payables turnover	6.42	5.85
Total Asset Turnover	1.83	2.07
Capital Intensity	0.55	0.48
Profit Margin	6%	3%
ROA	11%	7%
ROE	217%	64%

Answer 1

Answer-

Financial situation of Lowes

The liquidity ratios of Lowes especially current ratio ( current assets / current liabilities) and quick ratio ( ( Current assets - inventory) / current liabilities) hasmarginally increased showing that the company's liquidity position or it's ability to meet short term debt obligations has increased.

By analyzing the Solvency ratios we can infer that the Debt / Equity ratio in 2020 has increased (8.47 to 19.02) drastically showing that the companies leverage or debt has increased and the risk involved and the probability of default has increased, however the Debt / Assets has remained same.

The turnover ratios in particular the days sales in inventory has increased and the days payables has decreased ( 365 / 6.42 < 365 / 5.85 ) which shows that the cash conversion cycle has increased if receivables days remains same in both years which shows that the company is taking longer time to convert its investments in inventory and other resources into cash flows from sales.

Cash conversion cycle = Days sales in inventory + Days sales receivables - Days of payables

The profitability ratios ( Profit margin = net income / sales, ROA = net income / total assets and ROE = net income / total equity ) all have increased from 2019 to 2020, shows that the company is making profits and has efficiently utilized the assets and equity in generating net income.

Conclusion- The company Lowes has improved in liqudity ratios and profitability front but has incurred substantial debt in 2020 which has increased the D/E ratio.