Case Home Depot

2392 WordsNov 11, 201110 Pages
THE HOME DEPOT 1. 2. Questions Home Depot’s Stock Price Dropped 23% between January 1985 and February 1986. What Were the Reasons for this Decline? Should the Company Change its Strategy? THE HOME DEPOT Strategic Analysis The Home Depot Pioneered the Concept of Warehouse Retailing in the Home Centre Industry. The Company’s Strategy Consists of: Focusing on the Do-It-Yourself Segment of the Market; 1. Keeping Costs through Low Overhead, Purchase Discounts, and High Turnover; 2. Attracting Customers through Aggressive Advertising and Competitive Pricing; 3. Providing High Service to the Target Customer Group through Well-Trained Employees 4. and Well-Stocked Stores; THE HOME DEPOT Financial Analysis (1) 1. The Home Depot Is…show more content…
This Could Become a Competitive Liability for The Home Depot if There Is a Price War in the Industry; THE HOME DEPOT Cash Flow Analysis (1) • The Company Has a Negative Cash Flow from Operations in Each of the Three Years: This Need Not Necessarily Be Alarming as the Home Depot Is a Growth ­ Company; However What Is Potentially Alarming Is the Huge Increase in the Negative ­ Cash Flow from Operations between 1984 and 1985, Primarily Due to a Large Inventory Increase; The Negative Cash Flow from Operations Is Exacerbated by the Decline in ­ Margins; The Significant Investment in Property and Equipment Was a Second Reason for the Company’s Cash Deficit: In 1985, the Company’s Expansion Required an Investment of $90m; ­ Since the Company’s Operations Generated Negative Cash Flow, this Investment ­ Had to Be Funded through External Sources; Most of the Company’s Cash Needs Are Financed through Long-Term Debt: In 1984, the Company Borrowed $120m, and an Additional $92m Was Borrowed ­ in 1985; The Company Used Convertible Debt in Both Years, which Is Unlikely to Get ­ Converted into Equity Any Time Soon; In Contrast to the Home Depot, Hechinger Had a Positive Cash Flow from Operations in Each of the Three Years; Hechinger Did Not Rely on Debt

More about Case Home Depot

Open Document