- Balance Sheet of the Company
The balance sheet of “The Home Depot” has been made with the accounting standard of Generally Accepted Accounting Principles (GAAP) and all of the items incurring in the balance sheet has been made with the same provision. The balance sheets of the year 2013 are published for the company and all the figures which have been used in the financial statement are actively confirmed by the auditors of the company in total. However, there are certain accounts that needed to be re-check and re-signs as well, which predominantly re current ration, debt to equity ratio and other important ratio (Choi, 2003). Apart from that, the balance sheet of the company is perfect in total, which would certainly be effective for it’s in the near future.
- Depreciation
In the name of accounting and finance, the provision of depreciation is extremely important. Precisely, it could be said that Depreciation is the name of “Wear & tear” of the products and the provisions of the same could be extremely important in total. The method of utilizing the depreciation in both of the accounting standards, GAAP and International Financial Reporting Standards (IFRS) are different to each other (Peter Atrill, 2012).
The company is currently using the percentage decline method instead of straight line method (SLM) depreciation and the financial statement of the company is showing the same. However, it could also be found with this fact that Home Depot is a company engage in making of home construction and other similar things in total in which SLM could not be used and the depreciation of these equipments could be found with the help of percentage declining method, therefore Home Depot Inc is using the same.
- Point of Recognizing Revenue
It is not always possible that a company has a high amount of net income while the cash flow from operations would be on a lower place. The total sales of the company were US$ 74,754 million in the fiscal year 2013, while the cash flow from operations was 6,975 in the same year (Home Depot Inc, 2013). The net proportion of Cash Flow from operations to sales ratio is 9.3%, which is extremely low, which is showing that the company is dealing accrual base of accounting, in which the company can recognize the revenue without actually receiving the cash in particular. Hence the point of recognizing the revenue for Home Depot Inc is at the time of customer’s original taking order.
- Financial Competitiveness of the Company
Home Depot Inc is one of those companies which working exceptional at the time of current economic crisis as well. The total revenue of the company is increasing year by year which is again a positive sign for the company as a whole. Apart from the sales, the net income from continued operations of the company is also increasing tremendously well year by year (YBY) with effective percentage increase. Consistent growths in Net Profit Margin (NPM) of 88, 61 and 55 basis points have been envisaged in three years like 2011, 2012 and 2013 respectively. The average NPM of the company is 5.12%, showing that the company is able to generate 5.12$ from the net sales of 100$ (Home Depot Inc, 2013). Liquidity is again an important provision from the viewpoint of an organization in total. Liquidity Analysis of the company reveals that the operations of the company is highly liquid as the average Current Ration of the company is 1:34, which is above the psychological level of 1.
- Gross Profit Margin
Gross Profit Margin (GPM0 is an important provision from the viewpoint of an organization. High GPM is an indication that the company is doing a great job as far as become economically efficient is concerned (Hightower, 2008). The GPM of the company along with the graph is mentioned below
- Trends in Sales and Gross Profit
Apart from the net sales, the gross profit of the company is also increasing with regular percentages in total. The gross profit of the company showing an incremental essence of 3.09%, 4.11% and 6.52% in the years 2011, 2012 and 2013 respectively which is again a positive sign from the viewpoint of the company
- Dollar Value of Financial Assets
Financial assets could be extremely important for an organization as far as increasing the shareholders equity is concerned. The financial Assets of a company made up from cash and cash based equivalents and trading of asset securities (Hoffman, 1996). The total worth of cash and short term investment of the company in the year 2013 was US$ 2,552 million, which has been increased by 26.92% in the year 2013 as compared to the year 2012, showing a significant increase and change in the net worth of the financial assets of the company in total. This particular aspect is again effective and positive from the viewpoint of the company in total.
- Marketable Securities
In finance marketable securities are the securities which have the tendencies to change in cash sooner than later (Hoffman, 1996). Marketable securities are those securities which are extremely liquid which can be sold out easily by an organization at any time of hardship. In the years from 2010 to 2012, the amount of marketable securities of the company is zero, while it went on a level of US$ 28 million in total. The company has not yet gain on its current marketable security investment as it is currently a part of the company’s current financial assets and the company has the option to use the same in future in case of any hardship or tough time in total.
- Allowance for Bad Debt
Bad Debt is basically an expense which has been formed and accomplished, if the company would not get anything from their major customers. For the economic based prosperity of a company, the essence of allowance for bad debts should be taken and place into a small place because it increase the liability and expense of the company (Choi, 2003). According to the financial statement of the company, Home Depot Inc has a total Allowance for Bad Debts of 3.8% of net sales, hence the dollar value of this particular stance for the year 2013 would be US$ 2,840 million in total which may be ineffective for the company as a whole, because it is sort of an expense for the company and it needed to be on a lower place in order to accelerate the pace of the net income (Home Depot Inc, 2013).
- Days to Receivable
Account Receivable is basically a sort of liability for a company and it needed to be on a smaller place or lower level in total (Peter Atrill, 2012). Receivable shows the amount which is due on the customers and which has to be getting by the organizations very soon; otherwise it will create number of problems for the companies a whole. Most of the economically sound companies have their average days to receivable to a level of 15-18 days.
On Average, Home Depot Inc has an average Day to Receivable of 16 days in total, which is quite satisfactory from the viewpoint of the company in total. It could be said that the average collection period from the customers is 18 days for Home Depot Inc on average.
- Inventory Turnover
Inventory Turnover is basically a ratio from which it is analyzed that how much inventory is utilizing of the company as far as recognizing the sales of the company in total (Peter Atrill, 2012). It is again an important measure uses by the companies as far as analyzing its stance to utilize its inventory. From the analysis, it is observed that the inventory turnover of the company in the fiscal year 2013 was 14.32% which is showing that the company is able to generate 14$ of sales from its inventory functions. The average Inventory Turnover of Home Depot Inc is 15% for 4 analytical years in total (Home Depot Inc, 2013).
- Inventory Remain
Likewise the inventory turnover, there is yet another important ratio which is used to assess the level of that how many days merchandising inventory remained in the balance sheet of the company (Peter Atrill, 2012). High amount of days remaining in the inventory would not be worthwhile for the companies in total and it needs to be decreased accordingly otherwise, it would create problem for the companies in total. According to the computation, it is found that the days from which the merchandising inventory would remain in the stock of the company is 14 days on average in four financial years. These particular amounts of days are quite high and it needs to be on lower level in total. If the company would become able to do this, then the amount of economic and strategic prosperity would certainly increase tremendously for the companies in total.
- Operating Cycle
Operating Cycle, usually known as Cash Operating Cycle (COC) and Cash Conversion Cycle (CCC) are basically terms which used to assess the level that how frequently, a company will increase its cash belongings and how effectively and quickly, it generates net cash for the company. There are three provisions which found in the formula of operating cycle which are days to receivable, days in inventory and days to payable.
The current days to receivable days of the company is 18 days and days to inventory is 14 days, while the days to payable of the company is 20 days, hence the cash operating cycle of Home Depot Inc is 12 days, which is a good one. If the receivable turnover would get better in future, then it might happen that the COC would also decrease considerably.
- Depreciation method
The depreciation method which the company is using to depreciate its building, furniture and equipment is double declining method which has been considered with the help of MACRS standards. The useful life of all of these assets is 20 years each and the company has to use before its useful life to get the most benefits from the same in total.
- Company’s Policy
Company’s Policies could be extremely important and effective from different standpoints, and no organization could attain growth without adhering and complying with the standards of policies of different provisions. There are number of policies associated with the company’s impairments of plant and the policy which home Depot is using is recording the PPE on the price of historical prices. It is more than important for the company to keep the policy up to a certain level in total. However this particular procedure deems quite critical from many standpoints but the company still managing to keep the pace with the same.
- Property Plant & Equipment and Depreciation
Financial statements are the end product of an organization, in which information of the financials and non financial based things would have been, recorded accordingly (Pizzey, 2001). Succinctly, it could be said that a financial report is basically a piece of document, in which information pertains to the total expenses and revenues should be recorded for different users of the company. In the account of balance sheet, the provision of Property Plant and Equipment (PPE) is one of them, which has their own capability and significance in total. According to the balance sheet of the company, the total amount of PPE recorded by Home Depot Inc in the fiscal year 2013 was US$ 38, 491 million, while the total depreciation recorded on the same provision in this particular year was US$ 14, 422 million, from which a net PPE of the company had been recorded with an amount of US$ 24,069 million which would be effective for the company as far as its financial belongings is concerned (Home Depot Inc, 2013).
References
Choi, F. D. (2003). International Finance and Accounting Handbook. Chicago: John Wiley & Sons.
Hightower, R. (2008). Accounting and Finance Policies and Procedures. Perth: John Wiley & Sons.
Hoffman, W. M. (1996). The Ethics of Accounting and Finance: Trust, Responsibility, and Control. New York: Greenwood Publishing Group.
Peter Atrill, E. J. (2012). Accounting and Finance for Non-Specialists: Includes MyAccountingLab. New York: Pearson Education, Limited.
Pizzey, A. (2001). Accounting and Finance: A Firm Foundation. Houston: Cengage Learning EMEA.
Home Depot Inc (2013). Financial statements [ONLINE] Available at: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=HD [Last Accessed 7 December 13]
