1

Debt and price-earnings ratios The Home Depot, Inc. HD operates aver 2 200 hurne improvernent retail stores and s competitor of Lowe's Low The follo ng data (in millions were adapted rom recen financial statements of The Home Depot Year 2 Year 1 39,946 $40,519 30,624 27,996 Total stackholdars equity 9322 12,522 $4.74 $3.78 Total assets Total liabilities Earnings per share 1. Compute the debt ratio for Years 1 and 2. Round to one decimal place. Year 2 Year 1 Debt ratio 2% 2. Given your answer to part (1), what is the ratio of stockholders' equity to total assets? Round to ne decimal place. Year 2 Year 1 Ratlo of stockholders equity to total assets 3. Compute the ratio of liabilities to stockholders equity Round to one decimal place. Year 2 Year 1 Ratio of liabilities to stockholders' equity 36 4. A high ratio of liabilities to total assets may indicate all af the follawing except: a. Total assets exceed liabilities. b. The company Is financing Its operations with a high percentage of debt. c. If operating performance declines, the company may face increased risk that it will not be able to pay its liabilities. d. The company's ability to borrow addition al furnds would be difficult for new expansion ppartunities Choose the correct answer: 5. Comparing Years 1 and 2, should creditors feel more or less safe in Year 2 6. With a market price of $104.43, compute the price-earnings ratio for Year 2. Round to one decimal place. 7. With a market price of $75.09,compute the price earnings ratio for Year 1. Round to one decimal place 8. The price-earnings ratio has percent during Year 2. This in the price-earnings ratio implies that the market has changed its expctaion for earmings growth, and that in year 2 it expects future earings to than it did in Year 1