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Home Depot Financial Case Study

In: Business and Management

Submitted By lollipops09
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Corporate Overview

Table of Contents
Corporate History 2
Top Management Team 3
Conclusion 5
Appendix A – Vertical Analysis 6
Appendix B – Horizontal Analysis 7
Appendix C – Ratio Analysis 8
Appendix D – Strengths and Weaknesses 9
Appendix E – Miscellaneous 10
Footnotes 11

Corporate History
The Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank. In the late 1970s, they were both officers in a Southern California home-center chain called Handy Dan when turnaround artist Sanford S. Sigoloff took over Handy Dan's ailing parent company, Daylin Inc. The corporate raider was notorious for gutting senior management, but as Marcus writes in the duo's autobiography, Built From Scratch, "Handy Dan made so much money that we thought Sigoloff would be stupid to get rid of us."
They thought wrong. In 1978, citing trumped up charges that they had allowed an underling to create a fund improperly used to fight a union at Handy Dan stores in San Jose, California, Sigoloff did fire Marcus and Blank.
The Home Depot is a do-it-yourself, home improvement store based on excellent customer service, low prices, and a wide selection of products. The company is headquartered in Atlanta, GA, where the business began with two stores.
From the start, associates offered the best customer service in the industry by guiding customers through projects such as laying tile, changing a fill valve, or handling a power tool. Store associates undergo rigorous product knowledge training. The Home Depot revolutionized the home improvement industry by providing know-how and value-based tools to the consumer.
The Home Depot is the fastest growing retailer in U.S. history, particularly through its tremendous growth in the 1980s and 1990s. In 1981, the company went public on NASDAQ, but it moved to the New York Stock Exchange only four years later. 1989 marked the celebration of its 100th store opening, but expansion didn’t stop there. The Home Depot began expanding into international markets including Canada in 1994, Mexico in 2001, and China in 2006.
The Home Depot’s main competitor is Lowes, which has been operating since 1946 and currently has 1825 locations with 245,000 employees. To maintain its competitive advantage, The Home Depot has recently returned to a value-based strategy by focusing on hiring a knowledgeable sales force and delivering customer satisfaction. In contrast, Lowes has implemented a low-cost approach by implementing more self-serve checkout lines and cutting staff. As of Q3, 2013, The Home Depot employs over 335,000 workers in more than 2,200 locations worldwide and is ranked number 45 of “Fortunes World’s Most Admired Top 50 Ranking”.
Top Management Team |

Mr. Francis Blake – Chairman and Chief Executive Officer
Blake is a graduate of Harvard and has a doctorate from Columbia Law School. From 1991–1995 he was the general counsel for General Electric. As senior vice president for corporate business development, he led all business development efforts, including worldwide mergers, acquisitions, dispositions, and identification of strategic growth opportunities. Blake then served as Deputy Secretary for the U.S. Department of Energy (DOE), a role similar to that of chief operating officer in the private sector. There, he was a leader in departmental policy decisions and managed DOE's annual $19 billion budget.
In 2002, Blake became the Executive Vice President for Business Development at The Home Depot. He was appointed Chairman and CEO in 2007. He has changed the management style and brought back the core values of The Home Depot. Blake's strategy has revolved around reinvigorating stores and service culture; he recognizes that employee morale is a more sensitive issue in retail compared to other industry sectors like manufacturing.
2012 Salary and Bonuses = $3.88 M and Options exercised $2.74 M
Ms. Carol B. Tomé - Chief Financial Officer, Principal Accounting Officer, and Executive Vice President of Corporate Services
Tomé has a bachelor’s degree in Communication from the University of Wyoming and a Master of Business Administration in Finance from the University of Denver. Carol joined The Home Depot in 1995. Prior to that, she was vice president and treasurer of Riverwood International Corporation. Carol began her career as a commercial lender with United Bank of Denver (now Wells Fargo) and then spent several years as director of banking for the Johns-Manville Corporation.
Tomé has served as CFO since May 2001 and was named Executive Vice President of Corporate Services at The Home Depot in January 2007. She provides leadership in the areas of real estate, store construction, financial services, and strategic business development and growth initiatives. In 2012, The Wall Street Journal ranked Carol No. 2 on its list of the best chief financial officers in corporate America, and, in 2013, Fortune magazine listed her among the top 50 Most Powerful Women in Business, for the second consecutive year. She ranked No. 16 in Forbes magazine’s 2008 list of the World’s 100 Most Powerful Women and was included by The Wall Street Journal on its list of 50 Women to Watch in 2007.
2012 Salary and Bonuses = $2.43M and Options exercised $4.12M
Mr. Matthew A. Carey - Chief Information Officer and Exec. VP
Carey graduated from Oklahoma State University – Okmulgee with an associate’s degree in Information Systems. He is responsible for all aspects of the information technology infrastructure, including communication networks and retail systems. Matt is also responsible for the company’s IT strategy, including the development and execution of technologies used in stores, online and in the supply chain. He had previous experience as chief technology officer at both eBay and Walmart.
2012 Salary and Bonuses = $1.48M and Options exercised $2.42M
Mr. Craig A. Menear - Executive Vice President of Merchandising
Menear received a Bachelor of Arts from Michigan State University College of Business in East Lansing in 1979. He was named to his current position May 1, 2007. His responsibilities include global sourcing, vendor management, merchandising services, and all merchandising departments and strategy for The Home Depot. Menear joined The Home Depot in 1997 and has served in various management and vice president level positions in merchandising department. He has 26 years of experience in the retail and hardware home improvement industry. Prior to employment with The Home Depot, he operated an independent business and held various merchandising positions within the retail industry. His previous assignments include Ikea Wholesale, Inc., Builders Emporium, Grace Home Centers and Montgomery Ward.
2012 Salary and Bonuses = 1.77M and Options exercised $1.24M
Mr. Marvin R. Ellison – Executive Vice President of U.S. Stores Ellison has held this title at The Home Depot Inc. since August 25, 2008, and is responsible for the operations of the nearly 2,000 stores. With an extensive background in Operations, Loss Prevention, and Process Improvement, Mr. Ellison has 23 years of retail experience. He served as the President of Northern Division at The Home Depot Inc. from January 2006 to August 2008 and was responsible for the sales, profit, and operations of over 650 stores in the Midwest and Northeastern United States. He served as Senior Vice President of Global Logistics of The Home Depot Inc. from August 2005 to January 2006 and as its Vice President of Logistics from October 2004 to August 2005. He joined The Home Depot Inc. in 2002 and served as its Vice President of Loss Prevention from June 2002 to October 2004. He spent 15 years at Target Corporation from 1987 to June 2002. He is a director for both H&R Block, Inc. and US Home Systems, Inc. Mr. Ellison earned a Business Administration degree in Marketing from the University of Memphis, and a Master of Business Administration from Emory University.
2012 Salary and Bonuses = $1.67M and Options exercised $6.48M
Conclusion
|
According to many analysts, Carol Tomé will be the next CEO of The Home Depot. As noted in an online article, “It's unclear how close the working relationship is between Carol Tome, Home Depot's CFO, and Matt Carey, its CIO. I was more than a little nonplussed to see no mention of Carey in a BusinessWeek piece on Tome's efforts to bring Home Depot, seen as backward in its adoption of technology, up to speed with smaller retail rivals like Lowe's.” It seems there may be a lack up confidence in the ability of Carey, by Tomé, to handle implementation of new technology.
The top management team of The Home Depot appears to be performing their jobs with the interest of the stockholders in mind. As of Q3, 2013, the market value added (MVA) of the stock was $94.12 billion. The market value of the stock was $66 per share higher than the $10.10 per share book value. The team works closely with the front-line managers and employees, and it consistently upholds the values upon which the company was built.

Appendix A

Appendix B

Appendix C

Appendix D

STRENGTHS AND WEAKNESSES | LIQUIDITY | ASSET EFFICIENCY | * Current ratio is higher than industry and competition * Decline from 2011 to 2012 is consistent with industry trend * Current ratio is less than 2 and may be considered a weakness to investors * Quick ratio is higher than industry and competition * Demonstrates very strong ability to convert products into cash to meet short-term obligations | * Total asset turnover ratio is higher than competition, industry, and previous year * Fixed asset turnover is higher than competition * Fixed asset turnover has greater yearly increase than competition * Fixed asset turnover is unavailable for industry * Demonstrates very strong asset usage | LEVERAGE | PROFITABILITY | MARKET VALUE | * Total debt ratio is similar to competition. Industry ratio is unavailable * Similarity with competition indicates lack of significant risk levels * TIE ratio is below industry and above competition * Demonstrates leverage consistent with industry and competition with no specific strengths or weaknesses | * ROA is significantly higher than industry, competition, and previous years * Conversion of invested capital to earnings is very strong * Operating profit margin is significantly higher than industry, competition, and previous years * Demonstrates very strong profitability | * P/E is lower than competition and industry * P/E has minimal increase from previous year * P/E meets benchmark * EPS is significantly higher than competition * EPS is unavailable for industry * Demonstrates market value consistent with industry and competition with no specific strengths or weaknesses |

Appendix E CASH POSITION ANALYSIS | The Home Depot has maintained a steady cash basis for the past five years. With long-term financing, asset increases, and annual cash flows remaining consistent annually, it is not surprising that its year end cash balances are also consistent. |

PRIMARY FINANCING FOR ASSETS | Based on the steady amount of assets over the past five years, it is hard to determine how The Home Depot has financed them. Its long-term debt has also remained rather constant, if not declined, so it may be reasoned that assets are financed through long-term debt and the company has not undergone major asset purchases recently. | CORRELATION OF HISTORICAL EARNINGS AND STOCK PRICES | Based on the past five years of stock prices and earnings per share, there is a strong correlation between historical earnings and stock prices. |
EPS PRICE
EPS PRICE

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