Evaluating the financial analysis. Company is Home Depot. Last three years 2018,
ID: 2813217 • Letter: E
Question
Evaluating the financial analysis.
Company is Home Depot. Last three years 2018,2017, and 2016
Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last three years for your company. You also may use debt/equity ratio in your analysis. Present the ratios as the table(s) in your project.
6.24
Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last year for its major peer competitor. You also may use debt/equity ratio of peer competitor in your analysis. Present the ratios as the table(s) in your project.
5.35
Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?
ROE = Net Profit Margin × Asset Turnover × Leverage Jan 28, 2018 593.54% 8.55% 2.27 30.63 Jan 29, 2017 183.64% 8.41% 2.20 9.92 Jan 31, 2016 110.97% 7.92% 2.086.24
Explanation / Answer
ROE, Net Profit Margin, Asset Turnover and Leverage is alsready calculated in the question.
As we can see now from the data given, the company's ROE has increased from 110.97% to 183.64% from 2016 to 2017 and further to 593.54% in 2018.
Both net profit and asset turnover are relatively stable during this period. So this increase in ROE is not due to any drastic improvement in the business operations of the company.
However, the leverage of the company has increased from 6.24 to 9.92 from 2016 to 2017 and further to 30.63 in 2018.
The higher leverage lead to using debt obtained at a cheaper rate being used in the business. This would automatically increase the return to the equity shareholders. (As cheaper debt funds are now being used in a higher ratio to do the business.)
Thus the increase in leverage over the years is the main reason for increase in ROE.
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