Common size statements: the following are income statements for Lowe\'s and Home

Question

Common size statements: the following are income statements for Lowe's and Home depot for the years ended February 3, 2012 and January 29, 2012, respectively:

1. The companies do not use exactly the same account titles. Align the accounts accross two companies int he manner you beleive to be the most appropriate. Then prepare common-size income statemens for Lowe's and The Home Depot.

2. Compare the two companies by using the common-size statements.

The income statements for the two companies are below:

Lowe's (in millions) Net Sales 50,208 Cost of sales 32,858 Gross profit 17,350 selling, general and administrative 12,593 depreciation 1,480 interest, net 371 total operating expense 14,444 pretax earnings 2,906 Income tax provision 1,067 net earnings 1,839 The Home Depot (in millions) Net Sales 70,395 Cost of sales 46,133 Gross profit 24,262 selling, general and administrative 16,028 Depreciation and amortization 1,573 total operating expense 17,601 Operating income 6,661 Interest and investment income -13 Interest Expense 606 Other Interest and other, net 593 Earnings before provisions for income taxes 6,068 Provisions for income taxes 2,185 Net earnings 3,883

Explanation / Answer

1) Common size income statements

2)

Lowe's (in millions) Particulars amount ($) % Net Sales 50,208 100 Cost of sales 32,858 65 Gross profit 17,350 35 selling, general and administrative 12,593 26 depreciation 1,480 2 interest, net 371 1 total operating expense 14,444 29 pretax earnings 2,906 6 Income tax provision 1,067 2 net earnings 1,839 4 The Home Depot (in millions) Amount ($) % Net Sales 70,395 100 Cost of sales 46,133 66 Gross profit 24,262 34 selling, general and administrative 16,028 23 Depreciation and amortization 1,573 2 Interest and other, net 593 1 total operating expense 18,194 26 Operating income 6,068 8 Provisions for income taxes 2,185 3 Net earnings 3,883 5

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