The Home Depot Company: Overview

📄 Words:	2292
📝 Subject:	Company Analysis
📑 Pages:	6
💼 Companies:	Home Depot

Introduction

The Home Depot is amongst the largest companies in the United States that offer services in home improvements. Some of the services that it offers includes building materials, home improvement installation products, and services in the United States. The Company enjoys a huge number of customers due to its well-distributed stores across the United States, thus making it easier for customers to access products and services without having to travel long distances. The Shareholders have invested heavily in the capital assets as evidenced in the statements of financial position and statements of cash flow.

As a result, Home Depot Inc. can serve a huge market and offer attractive customer services such as credit sales. The mission of Home Depot is to expand its market share with customers and improve the value of their shares in the American stock market. To achieve the mission of the Company, Home Depot thrives to maintain a disciplined approach to delivering uncompromised customer experience and exceptional capital investment leading to product authority. The Company has put key growth strategies as exhibited in their financial statements such as the statement of owners’ equity, cash flow statement, balance sheet, and income statement.

Owner’s Equity

Home Depot, Inc. is a profit-making company that generates revenue from the provision of home services and the sale of development and building materials. The shareholders have invested in capital assets thus creating a good background for the company to compete in the United States market. The Company’s retained earnings, which also contribute to the additional working capital indicate the shareholders’ commitment towards realizing its mission which is to dominate the market through meeting customer needs.

The cash that the Company uses to run its day to day operations is subject to the Company’s working capital. According to Monestier (2014), a company’s working is determined by different trade variables such as fluctuation in currency exchange rates which has both negative and positive effects on the Company’s working capital. A drop in the local currency value may have adverse effects on the owner’s equity.

Additionally, account receivables have a direct impact on the company’s working capital because when customers or debtors fail to pay within their aging periods may result in provisions for bad debts and bad debts written off which reduces the Company’s operating income, thus reducing the amount of retained earnings. As outlined in the Company’s consolidated statement of owner’s equity below (Table 1:1), the increase in net earnings during fiscal 2018 was primarily because of reduced tax rates during the financial year 2018. The reduction in effective tax rates may have come about due to the enactment of the Tax Act and better comparable as outlined within the Company’s statement of the income statement.

Consolidated statement of owners’ equity of The Home Depot Company, Inc

		2019		2018		2017
Common Stock:
Balance at beginning of year	$	89	$	89	$	88
Paid-in Capital:
Balance at beginning of year		10,578		10,192		9,787
Shares issued under employee stock plans		172		104		132
Stock-based compensation expense		251		282		273
Balance at end of year		11,001		10,578		10,192
Retained Earnings:
Balance at beginning of year		46,423		39,935		35,519
Cumulative effect of accounting changes		26		75		—
Net earnings		11,242		11,121		8,630
Cash dividends		(5,958)		(4,704)		(4,212)
Other		(4)		(4)		(2)
Balance at end of year		51,729		46,423		39,935
Accumulated Other Comprehensive Income (Loss):
Balance at beginning of year		(772)		(566)		(867)
Cumulative effect of accounting changes		(31)		—		—
Foreign currency translation adjustments		53		(267)		311
Cash flow hedges, net of tax		8		53		(1)
Other		3		8		(9)
Balance at end of year		(739)		(772)		(566)
Treasury Stock:
Balance at beginning of year		(58,196)		(48,196)		(40,194)
Repurchases of common stock		(7,000)		(10,000)		(8,002)
Balance at end of year		(65,196)		(58,196)		(48,196)
Total stockholders’ (deficit) equity	$	(3,116)	$	(1,878)	$	1,454

Statement of Cash flows

The main source of a company’s liquidity is determined by its market value. Therefore, Home Depot exhibits a strong liquidity ratio because it enjoys a wide customer base which results in high sales revenue thus more cash from customers. The company’s cash flow statement is determined by the changes in the working capital. The cash flow provided by operating activities is subject to different cash and non-cash adjustments such as the depreciation of capital assets, interests on debts, amortization of fixed assets, income taxes, and other qualifying expenses such as employee compensations.

The cash for operating activities in a company is primarily generated from the net earnings. An increase in net earnings is a result of increased revenue. An establishment with a huge working capital can attract more customers and provide quality services thus increasing its sales. When the revenue is higher, the operating expenses are easily absorbed and the net realizable income increases therefore, allowing the shareholders to save more in terms of retained earnings. On that note, it can maintain a high cash flow thus improving its operations.

As indicated in the Home Depot Inc., there was a net increase in cash for operating activities, for example, in fiscal 2019 was $13.7 billion which resulted from the net earnings of approximately $11 billion and reduced non-cash adjustments of about $3 billion as illustrated in the Company’s consolidated statement of cash flow (Square, 2020). The cash adjustments to the cash flow statement include loss in stock value, impairment losses on the assets value, deferred income taxes, bad debts are written off which reduces the value of net realizable sales which hurt the Company’s working capital.

Consolidated Statements of Cash Flows

in millions		2019		2018		2017
Cash Flows from Operating Activities:
Net earnings	$	11,242	$	11,121	$	8,630
Reconciliation of net earnings to net cash provided by operating activities:
Depreciation and amortization		2,296		2,152		2,062
Stock-based compensation expense		251		282		273
Impairment loss		—		247		—
Changes in receivables, net		(170)		33		139
Changes in merchandise inventories		(593)		(1,244)		(84)
Changes in other current assets		(135)		(257)		(10)
Changes in accounts payable and accrued expenses		68		743		352
Changes in deferred revenue		334		80		128
Changes in income taxes payable		44		(42)		29
Changes in deferred income taxes		202		26		92
Other operating activities		184		(103)		420
Net cash provided by operating activities		13,723		13,038		12,031
Cash Flows from Investing Activities:
Capital expenditures		(2,678)		(2,442)		(1,897)
Payments for businesses acquired, net		—		(21)		(374)
Proceeds from sales of property and equipment		37		33		47
Other investing activities		(12)		14		(4)
Net cash used in investing activities		(2,653)		(2,416)		(2,228)
Cash Flows from Financing Activities:
(Repayments of) proceeds from short-term debt, net		(365)		(220)		850
Proceeds from long-term debt, net of discounts and premiums		3,420		3,466		2,991
Repayments of long-term debt		(1,070)		(1,209)		(543)
Repurchases of common stock		(6,965)		(9,963)		(8,000)
Proceeds from sales of common stock		280		236		255
Cash dividends		(5,958)		(4,704)		(4,212)
Other financing activities		(176)		(26)		(211)
Net cash used in financing activities		(10,834)		(12,420)		(8,870)
Change in cash and cash equivalents		236		(1,798)		933
Effect of exchange rate changes on cash and cash equivalents		119		(19)		124
Cash and cash equivalents at beginning of year		1,778		3,595		2,538
Cash and cash equivalents at end of year	$	2,133	$	1,778	$	3,595
Supplemental Disclosures:
Cash paid for income taxes	$	3,220	$	3,774	$	4,732
Cash paid for interest, net of interest capitalized		1,112		1,035		991
Non-cash capital expenditures		136		248		150

Income Statement

The income statement plays a significant role of determining a company’s profitability index. As every organization thrives to maximize revenue and minimize costs, the comprehensive statement of income enables a company to report sales, cost of sales and expenditure to realize its net income. This company uses income statement to report sales from home development products and services, installation cost and employee wages to achieve its net profit.

The general accounting basics dictate that a company records revenue at the point a sale is made and not necessarily when the customer pays for the goods and services. The Home Depot applies the accrual basis of accounting of realizing revenue regardless of whether cash is received. This is evident in the statement of the financial position of Home Depot where the Company has accounted for accounts receivables. Account receivables show that the company has made sales and offered services to customers pending payments. In cases where the customer defaults to pay for the service or the products, it will create a provision for bad debts and treat it as an expense in the income statement.

As described in Home Depot’s assertion of far reaching income, it also recognizes non-money costs on capital resources, for example, deterioration and goodwill in the calculation of its overall gain. The Home warehouse net deals incorporate income produced from services through an assortment of establishment, home upkeep, and expert help programs (Square, 2020). In these projects, the client chooses and buys material for an undertaking, and the Company gives or arranges for proficient establishment which is later charged in the Company’s statement of financial position as a consumption towards the acknowledgment of the net income. These programs are offered through the Company’s stores, online, and in-home deals programs.

Consolidated Statements of Comprehensive Income

		Fiscal		Fiscal		Fiscal
in millions		2019		2018		2017
Net earnings	$	11,242	$	11,121	$	8,630
Other comprehensive income (loss):
Foreign currency translation adjustments		53		(267)		311
Cash flow hedges, net of tax		8		53		(1)
Other		3		8		(9)
Total other comprehensive income (loss)		64		(206)		301
Comprehensive income	$	11,306	$	10,915	$	8,931

Balance Sheet

An asset report records an organization value or investors’ commitments. It is through the monetary record things that an association has a possibility of distinguishing its budgetary position. The Home Depot has its assertion of monetary situation, as found in Figure 4:1 plotting the resources, for example, receivables, generosity, inventories, and other non-current resources. A balance sheet comprises inventories that are maintained in the Company books and stores using different methods such as LIFO and FIFO (Wang, 2020). LIFO implies that the last batch of inventory is the first to be released to the market before they are worn out while FIFO implies that the first batch of inventory to be received is the first to be released to the market. By the end of every financial year, it should evaluate its stock using a method that enhances the inventory is carried at its lowest realizable value or the market value.

Different types of fixed resources held at Home Depot incorporate structures, furniture, apparatuses, and hardware that it records at cost and devalued utilizing the straight-line strategy over their assessed valuable lives. Leasehold enhancements are amortized utilizing the straight-line strategy over the first term of the rent or the helpful existence of the improvement, whichever is more limited. The Company underwrites certain costs, including interest, identified with development in progress, and the obtaining and improvement of programming (Monestier, 2014). The Company’s accounting report perceives depository stock and is reflected as a decrease of stockholders strategy to utilize the weighted-normal buy cost to decide the expense of depository stock that is reissued assuming any.

Consolidated Balance Sheets

in millions, except per share data		February 2,		February 3,
in millions, except per share data		2020		2019
Assets
Current assets:
Cash and cash equivalents	$	2,133	$	1,778
Receivables, net		2,106		1,936
Merchandise inventories		14,531		13,925
Other current assets		1,040		890
Total current assets		19,810		18,529
Net property and equipment		22,770		22,375
Operating lease right-of-use assets		5,595		—
Goodwill		2,254		2,252
Other assets		807		847
Total assets	$	51,236	$	44,003


Liabilities and Stockholders’ Equity
Current liabilities:
Short-term debt	$	974	$	1,339
Accounts payable		7,787		7,755
Accrued salaries and related expenses		1,494		1,506
Sales taxes payable		605		656
Deferred revenue		2,116		1,782
Income taxes payable		55		11
Current installments of long-term debt		1,839		1,056
Current operating lease liabilities		828		—
Other accrued expenses		2,677		2,611
Total current liabilities		18,375		16,716
Long-term debt, excluding current installments		28,670		26,807
Long-term operating lease liabilities		5,066		—
Deferred income taxes		706		491
Other long-term liabilities		1,535		1,867
Total liabilities		54,352		45,881

Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,786 shares
at February 2, 2020 and 1,782 shares at February 3, 2019; outstanding: 1,077		89		89
shares at February 2, 2020 and 1,105 shares at February 3, 2019		89		89
Paid-in capital		11,001		10,578
Retained earnings		51,729		46,423
Accumulated other comprehensive loss		(739)		(772)
Treasury stock, at cost, 709 shares at February 2, 2020 and 677 shares at		(65,196)		(58,196)
February 3, 2019		(65,196)		(58,196)
Total stockholders’ (deficit) equity		(3,116)		(1,878)
Total liabilities and stockholders’ equity	$	51,236	$	44,003

Conclusion

The Home Depot, Inc has invested heavily in its supply chain network, which has provided significant competitive advantages from both flexibility and productivity standpoints. The Company continues to invest in this network to drive further efficiency through additional automation and mechanization, while also capitalizing on the scale this network provides to further extend these competitive advantages. It aims at maintaining its disciplined approach to capital allocation. Its strong performance, as exhibited in their financial statements has allowed it to invest in more competitors in the United States while returning capital to shareholders in the form of dividends and share repurchases.

During the fiscal year of 2019, after investing in the business, the Company returned approximately $13 billion to its shareholders in the form of dividends and share repurchases. The Company believes that ultimately scale, combined with a low-cost position, will win in retail, and it intends to deploy and leverage its scale in home improvement to win with the customer and deliver exceptional returns to shareholders. A company may develop a good working capital if its revenue is great thus generating a higher return, As a result, the shareholders can limit their withdrawals from it following a good liquidity ratio.

References

Monestier, T. J. (2014). Where Is Home Depot at Home: Daimler v. Bauman and the End of Doing Business Jurisdiction. Hastings LJ, 66, 233. Retrieved Web.

Square. (2020). 18 Companies headquartered in Georgia made Fortune 500 list. Web.

Wang, J. (2020). First 5 Kern Annual Report: Fiscal Year 2018-2019. Online Submission.