The Home Depot Inc., also known as Home Depot, is an American retailing company that focuses on home improvement. Home Depot provides tools, construction products, and services that are aimed at aiding efforts of home improvement. Home Depot Inc. is headquartered in Atlanta, at the Atlanta Store Support Center, in Cobb County, in the state of Georgia, in the same location it opened its first stores (The Home Depot, 2018). The current Fortune 500 list ranks the company at position 23, which is a significant improvement for the company over the years since 2013 (The Home Depot, 2018). This paper purposes to analyze the Sec 10-K financial reports of Home Depot for the fiscal year ended January 31, 2016.
The SEC 10-K report discussed significant aspects of the company’s financial conditions and results of operations in the MD&A section. The financial condition of the company is explained through the important accounting terminologies with regard to how certain numbers have changed from the previous year to the most recent filing of the SEC 10-K report. Essentially, the MD&A section notes that there has been a significant increase of 6.9% in the net sales of the organization’s operations for the 2065 fiscal year in comparison with the 2015 fiscal years (United States Securities and Exchange Commission, 2017). In context, there were other significant improvements, which include an increase in comparable store sales that include comparable customer transactions and average store tickets, which increased by 2.8% and 2.7% respectively (United States Securities and Exchange Commission, 2017).
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The SEC 10-K report also noted that the company in question faced significant improvement in the net earnings, which stood at $8.0 billion from $7.0 billion for the fiscal years 2016 and 2015 respectively. There was also an increase noted in the diluted earnings as depicted by per share of $6.45 from per share of 5.46 for the fiscal years 2016 and 2015 respectively (United States Securities and Exchange Commission, 2017).
Essentially, improvement of the company’s financial condition is well depicted by the figures mentioned above in comparison of two consecutive fiscal years. More data depicted by the MD&A section of the SEC 10-K report shows that for the improvements in the financial condition to be noted between the 2016 and 2015 fiscal years, some significant changes in the operations of the organization had been undertaken. These changes include the alteration of the accounting policy for shipping and handling costs and for online fulfillment customer costs (United States Securities and Exchange Commission, 2017). Consequently, the costs were included in the cost of sales section rather than the operating expenses section.
Furthermore, the reclassification of the Consolidated Balance Sheet for the Balance Sheet as of January 31, 2016 took place during this financial period. As such, there was a $475 million decrease to Deferred Income Taxes as of January 31, 2016, a decrease of $2 million to Other Accrued Expenses, an increase of $32 million to Other Assets, and a decrease of $509 million to Other Current Assets (United States Securities and Exchange Commission, 2017). This reclassification followed the adoption of ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.”
The term working capital is used as a measure of an organization’s efficiency and its overall short-term health (Collier, 2015). According to the SEC 10-k report, the financial statements of the Home Depot indicated that the company has been able to stabilize its working capital. The working capital after subtracting the current liabilities from the current assets stood at $3.591 billion (United States Securities and Exchange Commission, 2017). This is a significant figure given that the company’s Total Assets as of January 2017 was $42.966 billion.
After removing the taxes and operating expenses, Home Depot has been able to increase their revenue numbers significantly. The company’s net income was $7.957 billion in this financial year, which was an improvement of 13.5% in the previous year. As a result, the company has significantly increased its profit margin in view of net income, which is more than their competitor Lowe’s has managed in the same fiscal period. The company’s consistent improvement in its income numbers indicates that it stands to be a better investment than Lowe’s (Hoyle, Schaefer, & Doupnik, 2015).
The values presented in the financial statements of the Home Depot in the SEC 10-K report indicates a significant improvement in the inventory turnover. This is witnessed through the significant improvement in the company’s day sale in inventory and accounts receivable. All these come together to provide a positive perspective of the company’s Inventory turnover, which has witnessed consistent improvement in the last two fiscal years since 2015. The company realized an inventory turnover of 4.9 times in both the ends of 2015 and 2016 fiscal years.
Indeed, the financial condition of the organization has been represented sufficiently in the paragraphs above with emphasis given to significant issues such as the data breach, which increased the operating expenses. However, the alteration of the financial policy led to an increase in the cost of Sales and a decrease in operating expenses thereby creating a potential impact on the overall financial condition of the organization. In consideration of the acquisition of the interline brands, the company’s working capital has been stable for a few years and net income consistently on the increase each year making it a better investment option in regards to the similar company’s in the related industry.
