Question

Compare the Home Depot and Lowe’s

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):

		Year 3		Year 2		Year 1
Total assets		$42,549		$39,946		$40,518
Total liabilities		36,233		30,624		27,996
Total stockholders’ equity		6,316		9,322		12,522

Lowe’s Companies, Inc. (LOW), a major competitor to The Home Depot, Inc. (HD) in the home improvement retail business, operates over 1,800 stores. Lowe’s recently reported the following end-of-year balance sheet data (in millions):

		Year 3		Year 2		Year 1
Total assets		$31,266		$31,721		$32,732
Total liabilities		23,612		21,753		20,879
Total stockholders’ equity		7,654		9,968		11,853

Compare and interpret Home Depot’s ratio of liabilities to stockholders’ equity to that of Lowe’s.

Year 1	ratio of liabilities to stockholders’ equity is less than  . Thus, the risk to   creditors is less than that of  .
Year 2	ratio of liabilities to stockholders’ equity is less than  . Thus, the risk to   creditors is less than that of  .
Year 3	ratio of liabilities to stockholders’ equity is less than  . Thus, the risk to   creditors is less than that of  .

Answer 1

Ratio: Total liabilities/Total stockholders' equity

	The Home Depot (HD)	Lowe's Companies Inc. (LOW)
Year 1	2.24	1.76
Year 2	3.29	2.18
Year 3	5.74	3.08

Year 1	LOW's ratio of liabilities to stockholders' equity is less than HD's. Thus, the risk to LOW's creditors is less than that of HD's.
Year 2	LOW's ratio of liabilities to stockholders' equity is less than HD's. Thus, the risk to LOW's creditors is less than that of HD's.
Year 3	LOW's ratio of liabilities to stockholders' equity is less than HD's. Thus, the risk to LOW's creditors is less than that of HD's.