Part 3 Ratio Analysis 1 Liquidity FY 2018 Vs FY 2017

Part 3 Ratio Analysis1 Liquidityfy 2018 Fy 2017current R

Part 3 Ratio Analysis: (1) Liquidity: FY 2018 FY 2017 Current Ratio: Company Home Depot 1.25 Arc Hardware 0.04 Quick Ratio: Company Home Depot 0.98 Arc Hardware 0.78 Comments on the company’s liquidity: Be sure to include comments! The numbers are meaningless by themselves. Comment on what you see. What story do the numbers tell? The liquidity reflects the ability of business to pay off its short term obligations. The liquidity position of Home Depot is more efficient and stronger in contrast to its competitor Arc Hardware. The liquidity position of both businesses is satisfying, but the extent of strength is higher in Home Depot in contrast to Arc Hardware. (2) Asset Management FY 2018 FY 2017 Total Asset Turnover: Company Home Depot 2.20 Arc Hardware 2.23 Average Collection Period: Company Home Depot 45 days 47 days Arc Hardware 40 days 35 days Comments on the company’s asset management: The asset management ratio reflects the ability of the business management to use assets of the business for generation of sales volume. Both companies hold positive and satisfactory trends in terms of assets turnover ratio. However, Home Depot shows an increasing trend from 2017 to 2018, whereas Arc Hardware's asset turnover ratio decreased during this period. This indicates that in 2018, Home Depot used its assets more effectively for generating sales. The average collection period indicates how many days it takes to receive collections from debtors. Home Depot maintains an average collection period within an optimal level to prevent bad debts and sustain satisfactory credit sales. In contrast, Arc Hardware's collection period expanded rapidly from 2017 to 2018, suggesting an increase in bad debt risks. (3) Debt Management FY 2018 FY 2017 Total Debt to Total Assets: Company Home Depot 0.86 Arc Hardware 0.65 Times Interest Earned: Company Home Depot 14 times 13 times Arc Hardware 8 times 8.5 times Comments on the company’s debt management: Debt management ratios are satisfactory for both companies but show a more persistent increasing trend in Home Depot. The total debt to total assets ratio for Home Depot indicates that a large portion of assets is financed independently of debt, signaling lower financial risk. Similarly, the Times Interest Earned ratio shows Home Depot's strong capacity to cover interest expenses, with operating profits able to cover interest 13 to 14 times, whereas Arc Hardware can cover only about 8 to 8.5 times. This suggests that Arc Hardware carries a relatively higher debt burden. (4) Profitability FY 2018 FY 2017 Net Profit Margin: Company Home Depot 8.41% Arc Hardware 5.2% Return on Assets: Company Home Depot 19.5% Arc Hardware 9.4% Return on Equity: Company Home Depot 593.6% Arc Hardware 25.45% Comments on the company’s profitability: Home Depot demonstrates significantly higher profitability ratios, indicating more efficient earning capacity. The high return on equity for Home Depot reflects effective utilization of shareholders’ funds and superior financial performance relative to Arc Hardware. (5) Market Value Ratios FY 2018 FY 2017 P/E Ratio: Company Home Depot 19.39 Arc Hardware 16.24 Market to Book Ratio: Company Home Depot 149.52 Arc Hardware 5.34 Comments on the company’s market value ratios: Home Depot's market value ratios are more favorable, signaling higher investor confidence and market valuation. However, the exceedingly high Market to Book Ratio may suggest overvaluation or strong market expectations that should be closely monitored. PART 4, CONCLUSIONS AND RECOMMENDATIONS - Summarize your analysis. Review your comments in the financial analysis section and provide your assessment of the overall status of the firm. Include any recommendations you think are appropriate. The financial performance of Home Depot is more satisfying, showing positive and consistent trends across liquidity, asset management, debt management, and profitability. These indicators suggest that Home Depot is a more financially stable and efficient firm with better prospects for investors. Conversely, Arc Hardware exhibits weaker asset management and profitability ratios, indicating higher risk and lower efficiency. The positive trends in Home Depot's financial metrics suggest continued growth and investment attractiveness, whereas Arc Hardware may need strategic improvements to enhance efficiency and financial stability. I recommend that Home Depot prioritize efforts to improve its market valuation and share price to sustain its competitive advantage. For Arc Hardware, strategic initiatives should focus on improving asset utilization, reducing debt levels, and streamlining operations to bolster profitability and financial resilience. Overall, Home Depot appears to be a safer and more rewarding investment opportunity at present.