Home Depot

1422 WordsOct 16, 20086 Pages
Team Project #1 Home Depot, Inc. in the New Millennium (HBS 9-101-117) Question 1. Assess Home Depot’s financial performance from 1986 to 1999. What explains the decline in performance in 2000? (See Question #1 Exhibit) The slowing economy in 2000 combined with Home Depot’s aggressive expansion efforts was the reason for Home Depot’s poor financial performance. Between June 1999 and May 2000, the FED had raised interest rates six times – or a total of 1.75 percentage points – in an effort to slow the economy and economists had been noticing some softening of overall consumer demand. From Exhibit 4 we see an average increase in sq. footage of 26% per year for period 1986 – 2000 while average sales growth fall from an…show more content…
From this analysis, we see that Home Depot’s CFFO – Investments is positive each year, they are relying on its external cash flow in order to maintain sustainability. From their financials, we know Home Depot’s cash flows do not cover CAPEX, but cover PP&E meaning there is a growth problem but enough cash flow from operating activities to cover capital expenditures required to replace worn out equipment. The recommendation would be to curtail spending its growth by acquisition strategy. Year Net Earnings Capital Expenditures Difference 1997 $ 937.00 $ 1,194.00 $ (257.00) 1998 $ 1,160.00 $ 1,420.00 $ (260.00) 1999 $ 1,614.00 $ 2,053.00 $ (439.00) 2000 $ 2,320.00 $ 2,581.00 $ (261.00) 1997 1998 1999 2000 Working Capital 2,469.85 2,344.47 1,601.61 1,376.89 Working Capital / sales 5.4% 6.1% 5.3% 5.7% Sales 45,738 38,434 30,219 24,156 We can see based on the figures above that working capital is decreasing and not building up; therefore we can infer that Home Depot does not have an operating problem. Net income is

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