Question

Common size statements: the following are income statements for Lowe's and Home depot for the years ended February 3, 2012 and January 29, 2012, respectively:

1. The companies do not use exactly the same account titles. Align the accounts accross two companies int he manner you beleive to be the most appropriate. Then prepare common-size income statemens for Lowe's and The Home Depot.

2. Compare the two companies by using the common-size statements.

The income statements for the two companies are below:

	Lowe's (in millions)
Net Sales	50,208
Cost of sales	32,858
Gross profit	17,350
selling, general and administrative	12,593
depreciation	1,480
interest, net	371
total operating expense	14,444
pretax earnings	2,906
Income tax provision	1,067
net earnings	1,839
	The Home Depot (in millions)
Net Sales	70,395
Cost of sales	46,133
Gross profit	24,262
selling, general and administrative	16,028
Depreciation and amortization	1,573
total operating expense	17,601
Operating income	6,661
Interest and investment income	-13
Interest Expense	606
Other
Interest and other, net	593
Earnings before provisions for income taxes	6,068
Provisions for income taxes	2,185
Net earnings	3,883

Answer 1

1) Common size income statements

Lowe's (in millions)
Particulars	amount ($)	%
Net Sales	50,208	100
Cost of sales	32,858	65
Gross profit	17,350	35
selling, general and administrative	12,593	26
depreciation	1,480	2
interest, net	371	1
total operating expense	14,444	29
pretax earnings	2,906	6
Income tax provision	1,067	2
net earnings	1,839	4
The Home Depot (in millions) Amount ($) % Net Sales 70,395 100 Cost of sales 46,133 66 Gross profit 24,262 34 selling, general and administrative 16,028 23 Depreciation and amortization 1,573 2 Interest and other, net 593 1 total operating expense 18,194 26 Operating income 6,068 8 Provisions for income taxes 2,185 3 Net earnings 3,883 5

2)

sales are higher in home depot

Gross profit is less by 1 % in home depot due to cost of sales

Selling and admin Oh is higher in lowe's when compared to home depot

provision for income taxes are lower in lowe, Similarly they are high in home depot

Net earnings constitute 5 % of sales for home depot