Question

The “company” referred to below is Home Depot. This is requires real life data.

Certain questions require computations, so please show your work.

1. What are the current assets of the company?
2. What are the current liabilities of the company?
3. What is the current ratio of the company?
4. How does this compare to the Industry Average?
5. List one Contingent Liabilities, if any, that the company has mentioned in their annual report
6. Describe what a contingent Liability is and when it is recognized as an expense in the financial statements.
7. What is the return on Sales?
8. What is the return on Assets?
9. What is accounts receivable turnover?
10. What is the # of days to collect Receivables?
11. How does this compare to the Industry Average?
12. What is Inventory Turnover?
13. How many days does it take to sell the Inventory?
14. How does this compare to the industry?
15. Identify the Total Property and equipment value for the company before depreciation

Please answer in neat and organized format. Thanks

Answer 1

A. Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

B. Home Depot total current liabilities from 2006 to 2020. Total current liabilities can be defined as the sum of all liabilities classified as current for having maturities of less than one year.

• Home Depot total current liabilities for the quarter ending July 31, 2020 were $24.199B, a 28.73% increase year-over-year.
• Home Depot total current liabilities for 2020 were $18.375B, a 9.92% increase from 2019.
• Home Depot total current liabilities for 2019 were $16.716B, a 3.22% increase from 2018.
• Home Depot total current liabilities for 2018 were $16.194B, a 14.58% increase from 2017.

C. Current ratio can be defined as a liquidity ratio that measures a company's ability to pay short-term obligations. Home Depot current ratio for the three months ending July 31, 2020 was 1.30.

D.

E. Found None.

G.

The Home Depot's return on equity, or ROE, is -583.91 compared to the ROE of the Building Products - Retail industry of -583.91. While this shows that HD has struggled to make solid use of its equity, this metric will vary significantly from industry to industry.

Return on Equity (or ROE) is calculated as income divided by average shareholder equity (past 12 months, including reinvested earnings). The income number is listed on a company's Income Statement. Shareholder Equity (which is the difference between Total Assets and Total Liabilities) can be found on the Balance Sheet.

I. Home Depot Inc (HD) Accounts Receivable Turnover: 49.35 for the quarter ended August 2nd, 2020. Since the quarter ended January 31st, 2010, Home Depot Inc's accounts receivable turnover has decreased from 68.36 to 49.35 as of the quarter ended August 2nd, 2020.

L. Home Depot's latest twelve months inventory turnover is 5.6x. Home Depot's inventory turnover for fiscal years ending January 2016 to 2020 averaged 5.2x. Home Depot's operated at median inventory turnover of 5.1x from fiscal years ending January 2016 to 2020.

O.

F. A contingent liability is defined as a liability which may arise depending on the outcome of a specific event. It is a possible obligation which may or may not arise depending on how a future event unfolds. A contingent liability is recorded when it can be estimated, else it should be disclosed.

Description: A contingent liability is a liability or a potential loss that may occur in the future depending on the outcome of a specific event. Potential lawsuits, product warranties, and pending investigation are some examples of contingent liability.

If the amount can be estimated, the company sets aside that amount separately to be paid out when the liability arises. Contingent liability as a term does not apply only to companies, but to individuals as well.

For example, if you took an educational loan of Rs 10,00,000 from your bank to fund your child’s higher studies. That amount could well become a contingent liability if your child fails to make monthly payments after getting a job. You might have to pay the amount because you have taken the loan from your bank.

Let’s understand contingent liability from a company’s point of view. Your company might be in the middle of a lawsuit and your lawyer thinks that the other party has a strong case which could potentially lead to damages worth Rs 10 crore.

In that case, the company would book that amount as contingent liability on its balance sheet. On the other hand, if the lawyer or the legal department thinks that the other party does not have a very strong case in hand. They would advise the firm not to make any provision of a contingent liability.

When the probability of a contingent liability is low then is no journal or even a disclosure is required in the books of accounts.

H. The Home Depot's return on equity, or ROE, is -583.91 compared to the ROE of the Building Products - Retail industry of -583.91.

M. The Home Depot turns its inventory about once every 48 days.