The Home Depot Case

3341 WordsFeb 5, 201014 Pages
Home Depot Questions for Case Discussion 1. Look at page 16 of the case (Selected Financial Data). Note that fiscal 1985 ends on February 2, 1986 (there is a typo on this page; the far left numbers column should be February 2, 1986 instead of February 2, 1985). Evaluate Home Depot 's performance in the following areas: • Growth in Sales • Growth in Total Assets • Change in Net Income • Growth in Long-term Debt 2. Look at page 17 of the case (Management Discussion). Compare 1985 to 1983. Why has return on sales decreased from 4.0 percent to 1.2 percent? What factors might explain the individual category changes from 1983 to 1985? Remember that these are changes in percentage of sales, not in absolute amount. 3. Look at…show more content…
Are the values higher or lower than those in (a)? Why? ii. What is projected Return on Equity in 1990? iii. With such a high Return on Equity, why aren’t the projected Cash Flow From Operations numbers better? 6. In sheet Home Depot A, reset Gross Profit Percentage to 25.86% (just to put everything back to the way it was in the beginning). Now, switch to sheet Home Depot B. i. What is projected Cash Flow From Operations for the 5 years 1986 through 1990? Are the values higher or lower than those in (a)? Why? ii. What is the projected balance in Short-term Loans Payable at the end of each year for the 5 years 1986 through 1990? iii. What is the projected current ratio at the end of each year for the 5 years 1986 through 1990? iv. What is the projected balance in Paid-in Capital at the end of each year for the 5 years 1986 through 1990? 7. As of the beginning of fiscal 1986, would you loan Home Depot $75 million? Note: The numbers in the spreadsheet are in millions. The loan would replace existing long-term debt, so the total long-term as indicated in the spreadsheet would not change. Assume: i. That the ratios in sheet Home Depot A are expected to prevail. ii. That the ratios in sheet Home Depot B are expected to prevail. For both situations, A and B, briefly justify your loan decision using your projected financial statement data. THE HOME DEPOT Questions 1. Home Depot’s Stock Price Dropped 23% between January

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