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Home Depot and Lowes, both retailers of home improvement products and household goods. You will also explore some of the nonfinancial information offered in their annual reports, and compare their financial data to industry averages.

Find the 2016 annual reports of both companies from their websites (under the Investor Relations link), and answer the questions below.

1. Refer to the list of ratios in Exhibit 13.3 on page 670 of your text. Calculate the ratios listed for both Home Depot and Lowes for the most recent year shown, except EPS, fixed asset turnover, cash ratio, times interest earned, and dividend yield. For the price/earnings ratio, look up the stock price as of the financial statement date. Also create a common size income statement for each company for the most recent year to aid in your analysis.

2. Interpret and compare Home Depots and Lowes ratios and results of operations. Where do you see similarities and differences? Do the ratios show any strengths or weaknesses? Comment on each companys profitability, liquidity, and solvency. Using the P/E ratio, comment on whether the market appears to value one company over the other.

3. Using the DuPont analysis, explain any differences you see in the two companies return on equity.

4. Choose two or three ratios to compare to industry benchmarks for these companies. Are Home Depot and Lowes over or under the benchmarks, or about the same? What is your interpretation of your findings? (Locate industry benchmarks using one of the resources linked in Lesson 14.)

5. Read Managements Discussion and Analysis for each company. What additional insight does this section provide?

6. Write a concluding paragraph describing the main points of interest from your analysis.

ATIO BASIC COMPUTATION 1 Return on equity (ROE) 2 Retun on assets ROA) 3. Financial leverage peecentage ounting rage al Stockers quit eg Tail Awe 4 Net proft margin Return on Equity- Return on Assets 5. Earnings per share (EPS eghte erage Number of Common Shares Outstanding 6 Earnings quality Cash Flows from Operoting Activities Net income Asset Turnover Ratios 7. Total asset turnover Average Totai Assets 8. Fixed asset turnover Net Sales Reveue Average Net Fixed Asset 9. Receivable turnover ratio Net Credit Sales Average Net Recervables 10. Inventory turnover ratio Cost of Goods Sold Average Inventory Liquidity Ratios 11. Current ratio Current Assets Current Liabilitves Cash & Cash Equivalents + Net Accounts Receivable + Marketable Securities Current Liabilities 12. Quick ratio Cash & Cash Equivalents Current Liabilities 13. Cash ratio Solvency Ratios 14. Times interest earned ratio Net Income + Interest Expense+ Income Tax Expense Interest Expense Cash Flows from Operating Activities Interest Paid 15. Cash coverage ratio Total Liabilities Total Stockholders Equity 16. Debt-to-equity ratio Market Ratios 17. Price/Earnings (P/E) ratio 18. Dividend yield ratio Market Price per Share Earnings per Share Dividends per Share Market Price per Share "We list the basic computation for each ratio. Analysts sometimes adjust these basic computations de analysis they are conducting ATIO BASIC COMPUTATION 1 Return on equity (ROE) 2 Retun on assets ROA) 3. Financial leverage peecentage ounting rage al Stockers quit eg Tail Awe 4 Net proft margin Return on Equity- Return on Assets 5. Earnings per share (EPS eghte erage Number of Common Shares Outstanding 6 Earnings quality Cash Flows from Operoting Activities Net income Asset Turnover Ratios 7. Total asset turnover Average Totai Assets 8. Fixed asset turnover Net Sales Reveue Average Net Fixed Asset 9. Receivable turnover ratio Net Credit Sales Average Net Recervables 10. Inventory turnover ratio Cost of Goods Sold Average Inventory Liquidity Ratios 11. Current ratio Current Assets Current Liabilitves Cash & Cash Equivalents + Net Accounts Receivable + Marketable Securities Current Liabilities 12. Quick ratio Cash & Cash Equivalents Current Liabilities 13. Cash ratio Solvency Ratios 14. Times interest earned ratio Net Income + Interest Expense+ Income Tax Expense Interest Expense Cash Flows from Operating Activities Interest Paid 15. Cash coverage ratio Total Liabilities Total Stockholders Equity 16. Debt-to-equity ratio Market Ratios 17. Price/Earnings (P/E) ratio 18. Dividend yield ratio Market Price per Share Earnings per Share Dividends per Share Market Price per Share "We list the basic computation for each ratio. Analysts sometimes adjust these basic computations de analysis they are conducting

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