Financial statements so that they accurately reflect

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.financial statements so that they accurately reflect the company's financial condition and -:;c;;;ormance.Once we have adjusted the historical results (see Step 3), we are ready to forecast results. In Module 11, we explain how to project financial statements. The forecasting process dis- in Module 11 applies to credit analysis as well as to equity valuation. In particular, pro- cash flows are especially critical because a company must have sufficient cash in the future ~y debts as they mature and to service those debts along the way. The projected financials d adjust the capital structure to reflect anticipated future debt retirements as they come due me forecast horizon. Once we have the projected financials, we can compute the ratios we ibed above (regarding profitability, liquidity, solvency, and coverage) and evaluate changes zrends. ID-MODULE REVIEW 2 efer to the fisca12011 income statement and balance sheet of Lowe's Companies, Inc., below. LOWE'S COMPANIES, INC. Income Statement (In millions) For Fiscal Year Ended January 28, 2011 Net sales . Cost of sales . Gross margin . Selling, general and administrative expense . Depreciation . Interest . Total expenses . Pretax earnings .............................. ........ Income tax provision . Net earnings . $48,815 31,663 17,152 12,006 1,586 332 13,924 3,228 1,218 $ 2,010
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Required Compute the following liquidity, solvency, and coverage ratios for Lowe's Companies. Interpret and assess these ratios for Lowe's relative to those previously computed for Home Depot in our text. For 2011, Lowe's statement of cash flows reported cash from operations of $3,852 million and capital expenditures of $1 ,329 million. Assume Lowe's marginal tax rate is 35%. 1. Return on net operating assets 2. Return on equity 3. Times interest earned 4. EBITDA coverage 5. Operating cash flow to debt 6. Free cash flow to debt 7. Current ratio 8. Quick ratio 9. Liabilities-to-equity ratio 10. Total debt-to-equity ratio 4-19 Module 4 I Credit Risk Analysis and Interpretation Assets Cash and cash equivalents . Short-term investments . Merchandise inventory, net ...................... .... Deferred income taxes, net . Other current assets . Total current assets . Property, less accumulated depreciation . Long-term investments . Other assets . Total assets . Liabilities and Shareholders' Equity Current maturities of long-term debt . Accounts payable . Accrued compensation and employee benefits . Deferred revenue . Other current liabilities . Total current liabilities . Long-term debt, excluding current maturities . Deferred income taxes, net . Deferred revenue-extended protection plans . Other liabilities . Total liabilities . Shareholders' equity Preferred stock-$5 par value, none issued . Common stock-$.50 par value; shares issued and outstanding, 2011: 1,354; 2010: 1,459 . Capital in excess of par value . Retained earnings . Accumulated other comprehensive income . Total shareholders' equity . Total liabilities and shareholders' equity .
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