Ratio Analysis for Lowes

Please read the cases 10 and 12 and the case reading instruction file and answer the following questions

Assignment of case 10

1)  Create two exhibits for Lowe’s according to those (Exhibit 7 and 8) of Home Depot. Choose proper ratios. See the excel file of case 10.

2) Who deserves the “Management of the Year” award in the retail building-supply industry? Compare based on 2001 firm performance.

Home Depot demonstrated a strong management practices in the industry by properly forecasting market needs and through acquisitions of specialty stores. This not only allowed them to expand their influence in the industry, but it also allowed them to expand their influence in the industry. The company’s most important move was the whole “do it yourself” scheme, which gave customers a whole new outlook on hardware retail, furthermore the acquisition of smaller companies allowed them to target a different market.

The average for Lowe’s ROC was 6.95% and a ROE of 14.70% where else, Home Depot had a ROC of 15.22% and ROE of 17.52%. Using these benchmarks, an investor would want to go with the better average and invest with Home Depot. The NOPAT margin fluctuated for Home Depot showing changes in the firm operating efficiencies. Lowes showed a steady increase indicating operating efficiencies were improving.  When it comes to the stocks, Lowe’s stock prices better performed Home Depot, but after assessing every important, I would give the “Management of the Year” award to Home Depot for 2001.

3) How does the Home Depot forecasting model work? Why do we use ratios to forecast financial statements?

By using a combination of historical financial statements as well as economic data, Home Depot is able to forecast demand for the next year or quarter. Given that financial ratios provide valuable insight on the company’s financial performance, by evaluating the improvement on certain ratios as well as sales growth, the company can estimate what its future financial performance will be. And as a result, execute their management practices according to their forecast. 

Assignment of case 12

1. What is the current situation? Why did the company run out of cash? What are the consequences for the company?

Guna Fibres was founded in 1972 to produce nylon fiber, they use new technology and domestic raw materials. They discover a problem in January 2012 that trucks were stopped from delivering by the tax inspector because the excise tax hadn’t been payed. Malik discovered the company had overdrawn its bank account again, the 3rd time in recent weeks. Guna solely depends on All-India Bank and Trust Company for their loans in order to keep the company, as they do not have a steady cash flow, due to the fact they get more orders during the holiday season and any auspicious celebrations. The terms of the company’s bank loan specify that Gina must reduce its seasonal line of credit to a zero balance for a minimum of 30 days each year.