(Analyzing the quality of earnings and sustainability of capital expenditures) L
ID: 1171012 • Letter: #
Question
(Analyzing the quality of earnings and sustainability of capital expenditures) Look up the statement of cash flows for both Home Depot and Lowes using Yahoo! Finance a. Compute the quality of earnings ratio for both firms and all three years of data provided in the popup window: b. Compare the quality of earnings ratio for the two firms. For which firm do you feel most comfortable about the reported earnings quality? Explain c. Compute the capital acquisitions ratios for the latest three years for both firms d. Compare Home Depot's and Lowes' abilities of using operating cash flow to finance their capital expenditures. Which firm has relied more on the capital markets? a. Compute the quality of earnings ratio for both firms and all three years of data provided What is Home Depot's quality of earnings ratio in 2011? % (Round to one decimal place.) Data Table Home Depot 2012 Lowes 2012 2011 2013 2011 2013 $3,338,000 $3,883,000 $4,535,000 $2,010,000 $1,839,000 $1,959,000 $4,585,000 $6,651,000 $6,975,000 $3,852,000 $4,349,000 $3,762,000 Capital Expenditures (CAPEX) $1,096,000 $1,221,000 $1,312,000 $1,329,000 $1,829,000 $1,211,000 Net Income Cash Flow from Operations Enter your Done parts remainiExplanation / Answer
The below excel sheet provides all details with respect to quality of earnings ratio and quality of CAPEX ratio for 3 years. Answers for a) and c) are there in the below table
b) The quality of earnings ratio of Home Depot is better than Lowes(Based on the table). Because the ratio is greater than 100% for all the 3 years for Home Depot whereas Lowes ratio is less than 50% for all 3 years. Here higher the ratio better is the quality.
d) The Capital Acquisition ratio of Home depot is better than Lowes because this ratio is better than Lowes.
Higher the capital acquisition ratio better is the company financial health. This indicates that Lowes has relied more on capital markets
Best of Luck. God Bless
Home Depot Lowes 2011 2012 2013 2011 2012 2013 Net income 3,338,000 3,883,000 4,535,000 2,010,000 1,839,000 1,959,000 Cash flow from Operations 4,585,000 6,651,000 6,975,000 3,852,000 4,349,000 3,762,000 Capital Expenditures (CAPEX) 1,096,000 1,221,000 1,312,000 1,329,000 1,829,000 1,211,000 Quality of Earnings Ratio = Cash flow of Operations/ Net Income 137.4% 171.3% 153.8% 191.6% 236.5% 192.0% Capital Aquisition ratio = Cash flow from Operation/Capex 418.3% 544.7% 531.6% 289.8% 237.8% 310.7%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.