Home Depot vs. Lowe’s Analysis

1177 Words Feb 9th, 2013 5 Pages
Home Depot vs. Lowe’s
Retail Home Improvement
Financial Analysis

Background
Introduction
The home improvement sector of the economy is large with two major players in the industry and with many smaller local and regional competitors. These two major competitors are Home Depot and Lowe’s. These two companies account for over $110 billion in total sales each year. Even though sales have gone down over the past few years due to the downturn in the economy they have not gone down nearly as much as home sales and this is due to more people deciding to do more home improvements to their own home then buying a new home. Both of these companies have been able to keep up sales and increase them year over year by improving current
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ROA | 2008 | 2009 | 2010 | Home Depot | 9.50 | 5.62 | 6.41 | Lowe’s | 9.10 | 6.73 | 5.40 |

ROA is considered the best overall indicator of the efficiency of assets used in a company. Home Depot and Lowe’s ROA ratio both moved down due to the downturn in the industry but Home Depot was able to improve 2010.

ROE | 2008 | 2009 | 2010 | Home Depot | 33.97 | 19.12 | 19.81 | Lowe’s | 18.31 | 12.87 | 9.74 |

This ratio is similar to ROA except that it shows only the return on the resource contributed by the shareholders. Home Depot maintained steady ratio the last two years while Lowe’s has been decreasing over the past three years.

Asset Turnover | 2008 | 2009 | 2010 | Home Depot | 1.75 | 1.73 | 1.62 | Lowe’s | 1.56 | 1.48 | 1.43 |

Asset turnover depicts investment efficiency, because it shows how many sales dollars are generated for every dollar invested in the company’s assets. Lowe’s had relatively lower asset turnover ratios than Home Depot because their recent investment in PP&E.

Current Ratio | 2008 | 2009 | 2010 | Home Depot | 1.15 | 1.20 | 1.34 | Lowe’s | 1.12 | 1.22 | 1.32 |

This ratio indicates a company’s liquidity. It depicts how many dollars of current assets exist for every dollar in current liabilities. The ratio is the higher, the better. Home Depot and Lowe’s has increasing current ratio while Home Depot has a slightly higher one.