Question

ANALYSIS OF THE FINANCIAL STATEMENTS OF A PUBLICLY This Comprehensive Problem is to acquaint you with the content of the 2015 financial state ments of Home Depot, Inc., reproduced in Appendix A of this textbook. (The 2015 financial statements are for the fiscal year ended January 31, 2016.) The problem contains three major parts, which are independent of one another: Part / is designed to familiarize you with the general contents of a company's financial statements: Part Il involves analysis of the com- COM Home Depot, Inc. OWNED CORPORATION pany's liquidity, and Parrill analyzes the trend in its profitability if you work this problem as a group assignment, each group member should be prepared to discuss the group's findings and conclusions in class. A good starting point for understanding the financial statements of a company such as Home Depot, Ine, is to understand the accounting policies used in preparing those state ments. The first note accompanying the financial statements provides a brief description of the major accounting policies the company used. Most of the areas discussed in this note have been covered in this text. Part 1 Annual reports include not only comparative financial statements but also other sources of information, such as: • A multiyear summary of financial highlights, a summary of key statistics for the past 5 or 10 years. • Several pages of Notes that accompany the financial statements. Reports by management and by the independent auditors in which they express their respective responsibilities for the financial statements. C. Instructions Answer each of the following questions and 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 con- cerning these statements? b. Home Depot, Inc., combines its statement of retained earnings with another financial state- ment. Where are details about changes in the amount of retained earnings found? 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 Assume that you are the credit manager of a medium-size supplier of building mate- rials and related products. Home Depot wants to make credit purchases from your company, with payment due in 60 days. Instructions a. As general background, read the first note to the financial statements, "Summary of Significant Accounting Policies." Next, compute the following for the fiscal years ending January 31, 2016, and February 1, 2015 (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

Answer 1

$6345 - $5355 X100 - 15.13 percentage change in Ner sales from 2015 to 2016 $$8511 - $3116 $&&519 X1OO = 6.04 Percentage change in Net cater from 2014 to 2015 $63176 - $78812 x 100 $83176 5.251. percentage change in net earnings. 2014-2015 $6345 2015-2016 $7009 - $6345 -*100 = 9.471. $1009 Gross profit rate : 2014 = $ $26915 X100 - 34.15%. $78812 2015 > $28389x100 - 54.13%. $ 83176 $30265 -X100. 34.197. $&8519 Net Do.come as percentage of sales , Nel income sales $5385 2014 - x 100 = 6.83 $78812 2015. $0345 -x100 1.63% 2016 → $83176 2016 $7009 $86519 XLOD - 7.921. 4/4