Homework Answers
a)
| Ratio | Home Depot | Lowe's |
|
ROE (Net Income / Shareholder's equity) |
= $6,345 / $9,322 = 68.06% |
= $2,698 / $9,968 = 27.07% |
|
ROA (Net Income / Total Assets) |
=$6,345 / $39,945 = 15.88% |
= $2,698 / $31,827 = 8.48% |
|
Interest Rate (Interest/ Interest Paying Debt) |
=$830/17,197 =4.83% |
=522/11,367 =4.59% |
|
ROFL (ROA - Interest Rate) |
=15.88% - 4.83% =11.05% |
=8.48% - 4.59% = 3.89% |
B) Home Depot
* Profit Margin = Net Income / Sales = $6,345 / $83,176 = 7.63%
* Asset turnover = Sales / Total Assets = $83,176 / $39,945 = 2.082
ROA = PM x AT = 7.63% x 2.082 = 15.88%
Both profit margin and asset turnover drive the ROA for Home Depot.
Lowe's Company
* Profit Margin = Net Income / Sales = $2,698 / $56,223 = 4.80%
* Asset turnover = Sales / Total Assets = $56,223 / $31,827= 1.77
ROA = PM x AT = 4.80% x 1.77 = 8.48%
The asset turnover is the main driving force of ROA for Lowe's company.
C)
| Ratio | Home depot | Lowe's |
|
Gross profit margin Gross profit / Sales *100 |
= $28954 / $83,176 = 34.81% |
= $19558 / $56,223 = 34.79% |
|
Operating expenses to sales Operating expenses / Sales |
= $18,485 / $83,176 = 22.22% |
=$14766 / $56,223 = 26.26% |
The Gross profit ratio of home depot is more than Lowe's company that means Home depot is more profitable.
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