Financial Ratio Analysis of Home Depot
Liquidity Ratio: This ratio measures the company’s ability to meet its short-term obligations.
The various ratios that tells about the liquidity position of the company are:
1. Current Ratio – Current assets/Current liabilities
The ratio has deteriorated this year compared to the last year
2. Quick Ratio – (Current assets – inventories)/Current liabilities
This ratio has deteriorated slightly as compared to last year
It is more conservative than current ratio.
3. Cash Ratio – Total Cash assets/Marketable securities
This ratio has improved from last year. It only looks at the most liquid short-term assets of the company which could be used to pay-off the current obligations very easily.
Profitability Ratio: this ratio gives a good understanding of how well the company utilized its resources in generating profit and shareholder value
The various ratios which come under this are:
1. Gross profit margin – (Gross profit/Net sales ) * 100
The ratio has improved compared to last year. Higher margin percentage is a favorable indicator.
2. Operating profit margin – (operating profit/Net sales) * 100
The ratio has improved considerably from the previous year. By subtracting selling, general or administrative or operating expenses from a company’s gross profit, we get operating profit.
3. Net profit margin – (net profit/net sales) * 100
There is an improvement in this ratio from the last year. This so-called bottom line is the most mentioned when discussing a company’s profitability.
4. Return on Assets –(Net earnings/total assets)*100
There is a considerable improvement in this ratio as compared to the previous year. The more, the merrier.
5. Return on equity – (Net earnings/...