Financial Analysis Home Depot Essay

4398 Words Jul 9th, 2012 18 Pages
Financial Analysis of Home Depot

For Fiscal Year Ending February 3, 2008

Presented by:

Team FAB 5

Financial Analysis of Home Depot

Introduction

Founded in 1978 by Arthur Banks and Bernie Marcus, who were both fired from a local hardware store after a disagreement with their supervisor (http://founderbios.com/bernie-marcus.php), Home Depot opened its first store in Atlanta, Georgia on June 22, 1979 (www.corporate.homedepot.com). The founders had a vision to create a big-box retail chain that empowered customers to take on their own home improvement and repair projects. As the fourth largest retailer in the U.S. and the world’s largest home improvement retailer
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That is a great accomplishment for any company but is significantly excellent for a billion dollar company, such as HD.

One possible strategy that HD could implement to speed up collections, is to have customers pay for items < $100 use a cash or debit card payment method. This would ensure that HD collects on those specific payments immediately, thus decreasing the average outstanding days waiting to receive payment. Unfortunately, this type of strategy could put HD at risk for lost sales due to the customers’ ability to make credit card purchases. On the other hand, HD could provide percentage discounts on outstanding merchandise payment as an incentive to decrease “account receivable” time.

3. Is the company's inventory turning over at a satisfactory rate? Why or why not? Does the company maintain an adequate level of inventory to meet customer demand? Might it be the case that the company maintains TOO HIGH a level of inventory? Why or why not?

Cost of Sales (ending 2/3/2008): $51,352 Inventory (1/28/2007): $12,822 Inventory (2/3/2008) : $11,731 Average inventory(ending 2/3/2008): [pic] Inventory turnover ($51,352 / $12,277): 4.18 times Average days in inventory (365 / 4.18 times): 87.3 days

It should be noted, that 80% of HD’s current assets is in merchandise inventory. As such, Home Depot is dependent on selling its inventory to meet its cash obligations. This is not
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