EMBA 601: Financial Analysis of Home Depot and Brighton Store

This report presents a comprehensive financial analysis comparing the performance of Home Depot and Brighton Floor Store. It begins with an introduction to financial analysis, outlining the process of evaluating a company's financial position. The report then delves into a comparative analysis, utilizing various financial ratios such as gross profit margin, return on equity, return on sales, return on assets, debt to equity ratio, inventory turnover ratio, and asset turnover ratio to assess the companies' profitability, efficiency, and leverage. The analysis reveals that Home Depot exhibits a stronger financial position compared to Brighton Floor Store, with higher revenue generation capabilities, lower liabilities, and better asset turnover. The report also includes a cash flow analysis, highlighting the negative cash balances in investing and financing activities for Home Depot, and discusses the implications of these trends. Furthermore, the report identifies problems faced by Brighton Floor Store, such as high liabilities and competition from Home Depot, and offers recommendations for improvement, including investing in current assets, maintaining a balance between expenses and income, and reducing liabilities. The report concludes by emphasizing Home Depot's superior financial standing and suggesting areas for Brighton Floor Store to focus on for long-term financial stability.

Financial Analysis

FINANCE 1
Introduction
Financial Analysis is the procedure of analyzing, summarizing and evaluating the
financial position of the company. In this report, the discussion is made on the financial analysis
by evaluating the annual report of the company. In this report, the financial performances of two
companies have been evaluated in order to compare them. Home Depot has been taken into
consideration to analyze the financial performance with the Brighton Floor Store.
Ratio
Home Depot
Brighto
n
Ratio 2015 2015
Amount in
Millions
Gross Profit Margin Gross Profit 28389
Net Sales 83176
34.13% 31.80%
Return on Equity
Net income after preference
dividends 6345
Average common stock holder's
equity 40232
15.77% 19.20%

FINANCE 2
Return on sales Net profit 6345
Net sales 83176
7.63% 6.60%
Return on Assets Net income 6345
Total assets 39946
15.88% 19.90%
Debt to equity ratio Total Debt 2819
Total Equity 40232
0.07 0.54
Inventory Turnover ratio Cost of goods sold 54,222
Average inventory 11068
4.90 4.8
Asset Turnover Ratio Net sales 83176
Average Total Asset 40232
2.07 1.89
From the above analysis, it has been analyzed that the financial position of Home Depot
is strong as compare to the Brighton Store. As per the evaluation of the company, it is observed
that the company has more capability to generate the revenue as it amount of net sales is high as
compare to Brighton Floor Store. Home Depot has less liability as compare to the Brighton Floor
Store that helps to operate the business smoothly. It is also observed that the ratio of asset

FINANCE 3
turnover ratio is high in Home Depot as compare to the Brighton Store. Home Depot has 2.07
asset turnover ratios and 1.89 has Brighton Store (The Home Depot, 2015). The ratio of return on
sale is high as the amount of net sales is increasing due to which the ratio of return on sales is
high in Home Depot in the comparison of Brighton Floor Store.
Cash Flow Analysis
Quarter 1- March, 2015
Cash Flow Analysis of Home Depot
Net Cash Provided by Operating
Activities 3404
Net Cash Used in Investing Activities -317
Net Cash Used in Financing Activities -2,001
Quarter 1- June, 2015
Cash Flow Analysis of Home Depot
Net Cash Provided by Operating
Activities 5934
Net Cash Used in Investing Activities -553
Net Cash Used in Financing Activities -2140
According to analysis of cash flow statement, it is observed that the Home Depot have
negative cash balance in investing activities and financing activities. In March 2015 quarter, it

FINANCE 4
has been evaluated that the operating activities is 3404, Investing activities is -314, and financing
activities is -2001 (Investis, 2015a). In the quarter June 2015, the operating activity of the
company is 5934, Investing activities are -553 and financing activities is -2140 (Investis, 2015b).
In both the quarters, the company has negative cash balance which is not beneficial for the
company. It has been evaluated that the negative cash balance is increasing in quarter of June.
Negative amount of Investing states that the company invests in purchasing the fixed assets and
also invests in further an activity which helps to operate the business smoothly in long term.
Problems
It is observed that Brighton Floor stores have the large amount of liability instead of equity as
per the evaluation of debt to equity ratio. It becomes the biggest challenges for the company to
survive for long time in the market. It also has the risk of insolvency due to large amount of
liability. The company also faces the competition problem as Home Depot has strong financial
position in the market with the brand image. The company also has fewer amounts of assets as
compare to the competitors due to which it gets less returns and its liquidity position also
affected which is necessary to operate smoothly in the market. As per the cash flow analysis, it is
observed that Home Depot invests in many activities due to which its financial position is strong.
It also raises the high threat of competition in the future due to which its revenue and its net
profit is affected.

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Recommendation
From the above evaluation, it has been found that Home Depot has strong financial situation
in the comparison of Brighton Floor Store. There are some areas that the store has to focus in
order to improve the activities and these are:
 It has to invest in current assets instead of fixed assets in order to improve the liquidity
position of the store.
 The store also has to maintain the balance between expenses and income. The store has to
reduce its expenses so that it can earn high revenue and operate smoothly.
 It also has to reduce the liability by collecting the receivable amount in few days so that it
have enough cash to pay all short term liabilities and its liability amount is reduces.
Conclusion
At the end, it is concluded that Home Depot has strong financial position as compare to
Brighton Floor Store. It is observed that the financial position of Brighton Floor Store is not
strong that is why; it is recommending that the company has to focus on some areas such as
investing in current assets, reduces liabilities and the others. The areas which are suggested for
the company to improve the financial position is beneficial for long term survival.

FINANCE 6
References
The Home Depot. (2015). 2015 Annual Report. Retrieved From:
http://www.annualreports.com/HostedData/AnnualReportArchive/t/NYSE_HD_2015.pdf
Investis. (2015b). Home Depot Inc filed this 10-Q on May 27, 2015. Retrieved From:
https://otp.tools.investis.com/clients/us/home_depot/SEC/sec-show.aspx?
Type=page&FilingId=10725135-8292-40914&CIK=0000354950&Index=11100
Investis. (2015a). Home Depot Inc filed this 10-Q on Aug 25, 2015. Retrieved From:
https://otp.tools.investis.com/clients/us/home_depot/SEC/sec-show.aspx?
Type=page&FilingId=10880942-8283-48747&CIK=0000354950&Index=11100