Question

The instructions on how to do the problem is on the first picture. Where the answers go is on the last picture attached
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 company should be concerned about the change in the ratio.

Answer 1

Following are the ratios in the format provided as follows :-

Ratios	2017	2016	interpret
Current ratio (current assets/current liabilities )	1.25 (17724/14133)	1.32 (16484/12524)	current ratio measures total amount of current assets available in order to satisfy current liabilities. It should be noted that current ratios of the company has reduced from 1.32 in 2016 to 1.25 in 2017. Although the reduction is not too high but still is beyond the desirable which is around 2. Thank s, company must be a little nit bit of concerned for this reduction.
Net income to average common stockholder equity ( net income / total stockholder equity)	1.84 (7957/4333)	1.11 (7009/6316)
Inventory turnover (cost of goods sold/average inventories )	5.11 {62282/(12549+11809/2)}	5.09 {58254/(11809+11079)/2}	inventory turnover shows how much company is efficient in selling it's inventory. In the present case inventory turnover ratio has increased from 5.09 in 2016 to 5.11 in 2017 which shows company is able to make sales more quickly than earlier. Company must be happy in this case and not concerned . However it would try to further increase the turnover.
No. of days sales in accounts receivable (average accounts receivable/total credit sales x no. of days)	7.56 days [{((2029+1890)/2)/94595}x365]	6.96 days [{((1890+1484)/2)/88519}x365]
Equity ratio (total stockholder equity / total assets)	0.10 (4333/42966)	0.15 (6316/41973)
Net profit margin (net income / sales )x100	8.41% (7957/94595)x100	7.92% (7009/88519)x100	Net profit margin shows out of $100 sale how much company is able to earn after paying out all the expenses. In the present case Net profit margin of the company has improved from 7.92% in 2016 to 8.41% in 2017. This, company would be happy and not concerned. However it would made further efforts to improve it further more.
Total assets turnover ( sales / average total assets )	2.23 {94595/(42966+41973)/2}	2.16 {88519/(41973+39946)/2}
Acid test (quick) ratio (quick assets / current liabilities )	0.37 {(17724-12549)/14133}	0.37 {(16484-11809)/12524}