ANALYSIS: For the past two years (2012-2013) both Home Depot (HD) and Lowes (LOW) appear to be performing companies. However, overall Home Depot is a significantly stronger company. The total sales growth for HD is 3.0% versus 0.3% for LOW. A comparison of the Short-term Liquidity reveals that HD and LOW both have compatible current ratios. However, the Quick Ratio provides evidence that HD has a much stronger operational efficiency. The Days Receivable, Inventory and Payables all validate the efficiency of how HD is managing their inventory and accounts. Based on this simple fact alone, HD is performing well above LOW. The difference of profitability is highlighted at the significant difference in sales growth of HD (3.0%) versus LOW (0.3%). Within all categories of profitability, HD is out performing LOW. The return on assets to generating profits is proving to be very effective for HD. HD has separated itself from LOW in its capability and efficiency. HDs total asset and investment returns clearly separate them from LOW. The HD return on investments categories is almost double for HD over LOW.
It is this efficiency that gauges hoe much more effective HD is at putting investments to work to generate revenue. The long-term solvency ratios show that HD is also a much more secure company. The interest coverage is comparable to both companies. However, the Long-Term debt to common equity shows the leverage that HD has over LOW. It only has a very conservative 2% reliance on their debt versus a very high 52.9% for LOW. This difference shows the risk factor that could potentially affect the ability of LOW to repay their debts. The market ratio shows similar price earnings for both HD & LOW. The beta is also compatible and highlights the risk that LOW is slightly higher than HD. The HD Common Stock Market to Book Return, illustrates how HD has almost doubled their market value of their stock to the amount invested by stockholders. This is an incredible strength for any company to achieve. LOW also has a solid ratio, just not as strong as what HD has.
The cash flow from operation/net income shows a slight higher ratio for LOW. There was definitely a spike for all cash flow for LOW from 2012 to 2013. HD fell slightly behind LOW at the operational/new income ratio. However, HD is considerably stronger in the cash from operations/investment proving their ability of using internally generated cash from operations to expand the company if desired. The overall winner between HD an LOW is no question: Home Depot! The company is simply performing much better than Lowes in virtually every financial category as a company. Regarding the DuPont Analysis. In the 1920’s the DuPont Corporation developed what became known as the DuPont analysis, a technique which uses basic accounting identities to break down the return on equity into either 3 or 5 component parts. Based on the information within the report, HD has consistently achieved greater success and proves to be secure enough that it will continue this future trend. The overall Net Income/Sales & Earnings to Price Ratio illustrates clearly that operationally HD is a much better company than Lowes.