Value Line Publishing

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In addition to the written memo, please provide your calculated historical 1997-2001 financial ratios for Lowe’s as well as a forecast for Lowe’s for 2002-2006. 

 

 

 

Within the written memo, be sure to well address the following questions:

 

 

 

  1. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide?  Complete and compare a similar analysis for Lowe’s using the Excel Template provided – Lowe’s Financial Ratios.
  2. Who deserves the “management of the year” award in the retail-building-supply industry?  Provide a detailed explanation including support for your position.

 

 

 

  1. Assumptions drive the financial forecasting models like that of Home Depot in Exhibit 8.  By putting the assumptions all at the top of the model, the analyst can also easily alter the assumptions and measure the impact.  What do you think of Galeotafiore’s forecast for Home Depot? Are there any “red flags” in Galeotafiore’s work?

 

4.  Prepare a forecast for Lowe’s using the Excel Template provided – Lowe’s Forecast. Articulate and explain your choice of key assumptions within the memo. Draw upon the case dialogue about future growth opportunities and financial forecast for Lowes, as well as overall economic, demographic or sector/industry trends evidenced in the exhibits.

Lowe’s Ratio Analysis

Ratio Analysis for Lowes
Fiscal Year
1997 1998 1999 2000 2001
Working capital (CA – NIBCL*)
Fixed assets
Total capital
Tax rate
NOPAT (EBIT x (1-tax rate))
PROFITABILITY
Return on capital (NOPAT/total capital)
Return on equity (net earnings/equity)
MARGINS
Gross margin (gross profit/sales)
Cash operating expenses/sales
Depreciation/sales
Depreciation/P&E
Operating margin (EBIT/sales)
NOPAT margin (NOPAT/sales)
TURNOVER
Total capital turnover (sales/total capital)
P&E turnover (sales/P&E)
Working capital turnover (sales/WC)
Receivable turnover (sales/AR)
Inventory turnover (COGS/inventory)
Sales per store ($ millions)
Sales per sq. foot ($)
Sales per transaction ($)
GROWTH
Total sales growth
Sales growth for existing stores
Growth in new stores
Growth in sq. footage per store
LEVERAGE
Total capital/equity
* The author has altered the Working capital (Net Working Capital as its identified in the text) equation from CA – CL to that of Current Assets – Non-interest Bearing Current Liabilities. This is not uncommon.

Lowe’s Forecast

Financial Forecast for Lowes
Fiscal Year
2001 2002E 2003E 2004E 2005E 2006E
ASSUMPTIONS
Growth in new stores
Sales growth for existing stores
Total sales growth
Gross margin
Cash operating expenses/sales
Depreciation/sales
Income-tax rate
Cash & ST Inv. / sales
Receivable turnover
Inventory turnover
P&E turnover
Payables/COGS
Other curr. Liab./sales
FORECAST
Number of stores
Net sales
Cost of sales
Gross profit
Cash opertating expenses
Depreciation & amortization
EBIT
NOPAT
Cash and ST investments
Accounts receivable
Merchandise inventory
Other current assets
Total current assets
Accounts payable
Accrued salaries & wages
Other current liabilities
Non-int.-bearing current liab.
Working capital
Net property and equipment
Other assets
Total capital
Return on capital
 
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