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Analyze The Home Depot for three years The Home Depot, Inc. (HD), is the world’s largest home improvement retailer and one of the largest retailers in the United States based on sales volume. Home Depot operates over 2,200 stores that sell a wide assortment of building, home improvement, and lawn and garden items. Home Depot recently reported the following end-of-year balance sheet data (in millions): a. Compute the ratio of liabilities to stockholders’ equity for all three years. Round to two decimal places. b. What conclusions regarding the margin of protection to creditors can you draw from the trend in this ratio for the three years?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 2MAD
Textbook Problem
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Analyze The Home Depot for three years

The Home Depot, Inc. (HD), is the world’s largest home improvement retailer and one of the largest retailers in the United States based on sales volume. Home Depot operates over 2,200 stores that sell a wide assortment of building, home improvement, and lawn and garden items.

Home Depot recently reported the following end-of-year balance sheet data (in millions):

Chapter 1, Problem 2MAD, Analyze The Home Depot for three years The Home Depot, Inc. (HD), is the worlds largest home

  1. a. Compute the ratio of liabilities to stockholders’ equity for all three years. Round to two decimal places.
  2. b. What conclusions regarding the margin of protection to creditors can you draw from the trend in this ratio for the three years?

a.

To determine

Compute the ratio of liabilities to stockholder's equity for all three years for Company HD.

Explanation of Solution

Ratio of liabilities to stockholder's equity: This ratio measures the claims of creditors over claims of stockholders in financing the assets of a company. A lower ratio indicates that the company is able to pay off the creditors’ obligations efficiently. Formula of ratio of liabilities to stockholder's equity:

Ratio of liabilities to stockholder's equity = Total liabilitiesTotal  stockholder's equity  

Calculation of ratio of liabilities to stockholder's equity of Company HD for year 1:

Ratio of liabilities tostockholder's equity} = Total liabilitiesTotal  stockholder's equity =$27,996$12,522=2.24 

The ratio of liabilities to stockholder's equity of Company HD for year 1 is 2.24

b.

To determine

Derive conclusions on the margin of protection to creditors from the trend in this ratio.

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