Home Depot

1040 Words Mar 28th, 2011 5 Pages
1. Evaluate Home Depot’s business strategy. Do you think it is a viable strategy in the long run?

There are three aspects of strategy can be analyzed, mainly industry analysis, competitive analysis and corporate analysis. Since Home Depot carries only one business, corporate strategy analysis is not relevant for this question.

2.1 Industry Analysis
The Home Depot is the leader in the industry, but the market share is almost negligible (0.9%). However, it obtained 62% growth in 1985 which is far above the average in the industry. Judging from Porter’s five forces, the Home Depot is facing challenges brought by the existing firms. No much challenges raise from the new entrants. But the threats from the suppliers and the
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As a indicator of how well managers are using the funds from the shareholders, the sharp decline shows that the managers of Home Depot are not doing well. Related to ROE, ROA is also declining due to both declining in ROS and Asset Turnover. Although sales increase rapidly, the average asset growth is even higher, thus the Asset Turnover falls. The decline in ROS is the result of increasing COGS, SGA and the interest expense as a percent of sales. The decline in these aspects shows the decreasing efficiency of the company’s value chain creation. Both short term liquidity ratios and long term solvency ratios are not impressive. 3.5 Cash Flow Analysis
Negative cash flow was generated continuously for the three years. The large inventory increase may be the main reason. The rapid negative growth of the free cash flow available to debt and equity is noticeable.

We can summarize from ratio and cash flow analysis that the Home Depot heavily relies on debt financing to support its expanding. However, its inability to generate positive cash flow may cause it problem in the near future. As a result, the Home Depot is going to face its hard time financing for its business expansion.

3.6 Comparison
The profitability decreases for both companies. But Hechinger is declining in a much slower rate. Hechinger is in a better position in terms of ROS and AT which is caused by the

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