Question

I am attaching the pictures. the instructions is the first pic and the answers go on the last page
The Income Statement and Balance Sheet for The Home Depot, Inc. can be found as separate worksheets on tabs (a) and (b), respectively. On worksheet O, prepare a ratio analysis for 2017 and 2016 that includes the following ratios: Current ratio Net income to average common stockholder's equity Inventory turnover Number of days' sales in accounts receivable (assume 365 days in a year) Equity ratio Profit Margin Total Assets turnover Acid-test (quick ratio) For three ratios (current ratio, inventory turnover, and profit margin) include your interpretation of the results of your analysis. Your interpretation should include what the ratio measures, whether it is increasing or decreasing, and whether the

Answer 1

Following are the ratios :-

Ratios	2017	2016	interpretation
Current ratio (current / current liabilities )	1.25 (17724/14133)	1.32 (16484/12524)	current ratio indicates that for every $1 of current liability how much current asset is available. It measures short term liquidity position of the company. In the present case it has decreased from 1.32 in 2016 to 1.25 in 2017. Since current ratio of company has decreased it should be concerned about it.
Net income to average common stockholder's equity (net income / average common stockholder equity )	1.49 {7957/(4333+6316)/2}	0.90 {7009/(6316+9322)/2}
Inventory turnover (COGS / average inventory )	5.11 {62282/(12549+11809/2)}	5.09 {58254/(11809+11079)/2}	inventory turnover measures how efficiently company is able to turn it's inventory into sales. In the present case it has increased from 5.09 in 2016 to 5.11 in 2017. Since, inventory turnover ratios of company has increased thus, it should not be concerned rather happy about it.
No. of days sales in accounts receivable (accounts receivable / total credit sales x365)	7.83 days {(2029/94595)x365}	7.79 days {(1890/88519)x365}
Equity ratio (stockholder's equity / total assets )	0.10. (4333/42966)	0.15 (6316/41973)
Profit margin ratios (net profit / sales )	8.41% (7957/94595x100)	7.92% (7009/88519x100)	profit margin measures the profit earned by the company relative to sales made by it. In the present case it has increased from 7.92% in 2016 to 8.41% in 2017. Since, profit margin of company has increased it should be happy rather than concerned .
Total assets turnover (sales / average total assets )	2.23 {94595/(42966+41973)/2}	2.16 {88519/41973+39946)/2}
Acid test (current assets - inventory /current liabilities )	0.37 {(17724-12549)/14133}	0.37 {(16484-11809)/12524}