Home Depot Financial Analysis

1759 WordsMay 15, 20138 Pages
Overview Office Depot, Inc. (“Office Depot”), a supplier of a broad assortment of office products and business services throughout the United States and worldwide, announced on February 20, 2013 a merger agreement with OfficeMax, Inc., which will better equip them to compete in the rapidly-changing industry. In fiscal year 2012 alone, Office Depot generated $10.7 billion of revenues from its products and services, yet industry reviews of this company seem unfavorable. In this FSA Case Analysis, our team takes a careful look at Office Depot’s most recent financial statements; and, using the FSA spreadsheet, performs an internal environment analysis of its liquidity, solvency, operating efficiency and capital structure. In order to…show more content…
What’s worse, the primary sources of cash flow from operations were depreciation and assets impairment instead of net income. The increase in cash flow from investing activities, also in Figure 7, indicates that although the company continued to make investments in 2012, it had cut the amount dramatically. As a result, the investments might not be able to fit its needs for sustainable development. Overall, Office Depot’s solvency condition in the past three years has not been satisfactory. Figure 7: Cash Flow by Activities (in thousands) Operating Efficiency Analysis As a measure of operating efficiency, Office Depot’s ROA was incredibly low. The ROA in 2011 was only 0.8% and went all the way down to -1.9% in 2012, as shown in Figure 8, which demonstrates that management did a poor job in generating productivity from employing the firm’s resources. Figure 8: Return on Assets Considering that the industry’s average ROA was as high as 8.3%, a negative ROA is not acceptable for most companies. Given its cost of capital was 11.78% in 2012, the ROA of -1.9% indicates that the earnings of Office Depot was not able to cover its financing cost so that its performance was far from adequate in 2012. Based on the DuPont Equation in Figure 9, ROA is the product of ROS and assets turnover, both of which have declined in 2012 for Office Depot. Its assets turnover has
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