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# Follow the formulas on pp.

"This is a 3 step problem which utilizes the information that is in the attachment.
Part I

Instructions: Answer each of the following questions and briefly explain where in the statements, notes, or other sections of the annual report you located the information used in your answer.

a. How many years are covered in each of the primary comparative financial statements? Were all of these statements audited? Name the auditors. What were the auditors' conclusions concerning these statements?
b. Home Depot combines its statement of retained earnings with another financial statement. Where are details about changes in the amount of retained earnings fund?
c. Over the three years presented, have the company's annual net cash flows been positive or negative from 1) operating activities, 2) investing activities, and 3) financing activities? Has the company's cash balance increased or decreased during each of these three years?

Part II

Home Depot wants to make credit purchases from your company, with payment due in 60 days assuming you are a credit manager of a medium sized supplier.

a. read the first note to the financial statements, "Summary of Significant Accounting Policies". Compute the following for the fiscal years ending feb. 3, 2008, and jan. 28, 2007 (round percentages to the nearest tenth of 1 percent, and other computations to one decimal place):
1. Current Ratio
2. Quick Ratio
3. Amount of Working Capital
4. Percentage change in working capital from the prior year
5. Percentage change in cash and cash equivalents from the prior year.

B. Based upon your analysis in part a, does teh company's liquidity appear to have increased or decreased during the most recent fiscal year? Explain.

C. Other than the ability of Home Depot to pay for it's purchases, do you see any major considerations that should enter into your company's decision? Explain.

D. Your company assigns each customer one of the four credit ratings listed below. Assign a credit rating to Home Depot and write a memorandum explaining your decision.

Possible Credit Ratings:

A- Outstanding
B- Good
C- Marginal
D- Unacceptable

Part III
a. compute the following for the fiscal years ending Feb. 3, 2008 and jan. 28, 2007 (round percentages to the nearest tenth):

1. percentage change in net sales (relative to the prior year)
2. Percentage change in net earnings
3. Gross profit rate.
4. Net income as a percentage of sales.
5. Return on average total assets.
6. Return on average total equity.

B. Write a statement that describes your conclusion(s) concerning rends in Home Depot's profitability during the period covered in your analysis in part a above."
THE HOME DEPOT From THE HOME DEPOT financial statements attached, Income Statement and Balance Sheet, answer the following: (use whole numbers) 2007 2006 2005 BALANCE SHEET DATA Quick Assets 1,716 3,837 3,203 Current Assets 14,674 18,000 15,346 Current Liabilities 12,706 12,931 12,901 Stockholders' Equity 17,714 25,030 26,909 Total assets 44,324 52,263 44,482 (use whole numbers) INCOME STATEMENT DATA 2007 2006 2005 Net sales 77,349 79,022 77,019 Gross profit 25,997 26,546 25,938 Operating Income 7,242 8,866 9,047 Net income 4,395 5,761 5,838 2007 2006 2005 Working capital 1,968 5,069 2,445 Current ratio 1.15 1.39 1.19 (Round to two decimal place.) Quick ratio 0.14 0.30 0.25 (Round to two decimal place.) (Round to one-tenth of 1 percent.) from 2006 TO 2007 from 2005 TO 2006 Percentage change : Net sales -2.1% 2.6% Net income -23.7% -1.3% (Round to one-tenth of 1 percent.) 2007 2006 Gross profit rate 33.6% 33.6% Net income as a percentage of sales 5.7% 7.3% Return on assets 15.0% 18.3% Return on equity 20.6% 22.2% Follow the formulas on pp. 660 and 661, exactly
APPENDIX A HOME DEPOT PAGE A-4 CONSOLIDATED BALANCE SHEETS Feb 3,2008 Jan 28,2007 29-Jan-06 30-Jan-05 Assets 2007 2006 2005 2004 2007 2006 2005 2004 Cash & Equivalents 445 600 793 506 Short Term Investments 12 14 14 1,659 Receivables, Net 1259 3,223 2,396 1,499 1716 3837 3203 3664 Quick Assets Merchadise Inventories 11731 12,822 11,401 10,076 Other Current Assets, Total 1227 1,341 742 533 Total Current Assets 14,674 18,000 15,346 14,273 Land/Improvements 8398 8,355 7,924 6,932 Buildings 16,642 15,215 14,056 12,325 Machinery/Equipment 8050 7,799 7,073 6,195 Leasehold Improvements 1390 1,391 1,207 1,191 Construction in Progress 1435 1,123 843 1,404 Leases 497 475 427 390 Property/Plant/Equipment - Gross 36,412 34,358 31,530 28,437 Accumulated Depreciation (8,936) (7,753) (6,629) (5,711) Property/Plant/Equipment - Net 27,476 26,605 24,901 22,726 Note Receivables - Long Term 342 343 348 369 1209 6314 3286 1394 Other Long Term Assets 623 1001 601 258 Total Assets 44,324 52,263 44,482 39,020 Liabilities Notes Payable/Short Term Debt 1747 - 900 - Accounts Payable 5732 7,356 6,032 5,766 Accrued Salaries & Related Expenses 1094 1,307 1,176 1,055 Sales Tax Payable 445 475 488 412 Deferred Revenues 1474 1,634 1,757 1,546 Income Taxes Payable 60 217 388 161 300 18 513 11 Other Accrued Expenses 1,854 1,924 1,647 1,504 Total Current Liabilities 12,706 12,931 12,901 10,455 11383 11,643 2,672 2,148 Other Long-Term Liabilities 1833 1,243 977 871 Deferred Income Tax 688 1,416 1,023 1,388 Long-Term Debt 13,904 14,302 4,672 4,407 Total Liabilities 26,610 27,233 17,573 14,862 Shareholder Equity Common Stock 85 121 120 119 Additional Paid-In Capital 5800 7,930 7,287 6,650 11388 33,052 28,943 23,962 755 310 409 227 Unearned Compensation - (138) (108) Treasury Stock - Common -314 (16,383) (9,712) (6,692) Total Equity 17,714 25,030 26,909 24,158 Total Liab & Shareholders' Equity 44,324 52,263 44,482 39,020 Net Assets Acquired Debt installments Deficit) Income
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