Lowes Financial Ratios

This sample paper on Lowes Financial Ratios offers a framework of relevant facts based on the recent research in the field. Read the introductory part, body and conclusion of the paper below.

Financial Research Report: Lowe’s Companies, Inc Strayer University Abstract Review of Financial Research Report: This assignment is an analysis of a US publicly-traded company; its common stock could be a prospective investment. The report is due in Week 10, in needs to be at least 5 pages, and it needs to cover the following topics: Company Overview:  Conduct research and describe the company, its operations, locations, markets, and lines of business.

Collect financial statements for the past three years, fiscal or calendar.

Ratio analysis: Perform trend and ratio analysis on current and fixed assets, current and long term liabilities, owner’s equity, sales revenues, EBIT, net income, and earnings per share. Project these trends for three years. Stock price analysis: Research the company’s common stock price for the past five years.

Research the Standard & Poor’s Stock Market Index (S&P 500) for the past five years. Chart the price movement in the company’s common stock against the S&P price movement.

State and support your opinion on the company’s common stock as an investment opportunity. References:  Use at least five references and follow APA format when preparing the report. Lowe’s Companies, Inc. , is the second-largest home improvement retailer in the United States (trailing Home Depot Inc. ), holding about six percent of the $140 billion home improvement market.

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No longer a low-profile company, Lowe’s evolved from a regional hardware store operator into a nationwide chain of home improvement superstores bent on international expansion. The #2 US home improvement chain (after The Home Depot), Lowe’s has about 1,700 superstores in 50 states and more than 15 locations in Canada and Mexico, as well as an e-commerce site” (Lowe’s Companies, Inc, 2011, para 1). Lowe’s is also the seventh largest retailer in the U. S. With fiscal year 2009 sales of $47. 2 billion, Lowe’s Companies serves approximately 15 million customers a week and their current stock price (as of 3/11/11) is $26. 94 (Investor Relations, 2010). The market capitalization is $37. 18 billion. Its stores sell some 40,000 products for do-it-yourselfers and professionals for home improvement and repair projects.

Lowes Ttp

Lowe’s carries product such as lumber, paint, plumbing and electrical supplies, tools, and gardening products, as well as appliances, lighting, and furniture. The Lowe’s Companies, Inc is ranked number 42 among other Fortune 500 companies. According to “Lowe’s Reports Fourth Quarter Sales and Earnings Results” (2011), Lowe’s reported net earnings of $285 million for the quarter ended January 28, 2011, a 39% increase from the same period a year ago. Diluted earnings per share increased 50% to $0. 21 from $0. 14 in the fourth quarter of 2009. For the fiscal year ended January 28, 2011, net earnings increased 12. % to $2 billion and diluted earnings per share increased 17. 4% to $1. 42. Sales for the quarter increased 3. 1% to $10. 5 billion, up from $10. 2 billion in the fourth quarter of 2009. For the fiscal year ended January 28, 2011, sales increased 3. 4% to $48. 8 billion. Comparable store sales increased 1. 1% for the fourth quarter and increased 1. 3% for fiscal 2010 (para 1-2). Below are some figures from Lowe’s Balance Sheets and Income Statements from 2009, 2010, and 2011. These figures were obtained from the Hoover’s Company Profile. in millions of $, except EPS| Jan-11| Jan-10| Jan-09|

Current Assets| 9,967| 9,732| 9,251| Fixed Assets| 22,089| 22,499| 22,722| Total Assets| 33,699| 33,005| 32,686| Current Liabilities| 7,119| 7,355| 8,022| Long-term Liabilities| 6,537| 4,528| 5,039| Owner’s Equity| 18,112| 19,069| 18,055| Revenue| 48,815| 47,220| 48,230| EBIT| 3,228| 2,825| 3,506| Net Income| 2,010| 1,783| 2,195| EPS| 1. 42| 1. 21| 1. 49| Financial ratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements (“Financial Ratios,” 2010, para 1).

Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. The following financial ratios use the information provided in the previous table: Ratios | Formula| 2011| 2010| 2009| Return on Assets| Net Income/Total Assets| 5. 96%| 5. 40%| 6. 72%| Return of Equity| Net Income/Stockholders’ Equity| 11. 10%| 9. 35%| 12. 16%| Asset Turnover| Revenue/Total Assets| 1. 45| 1. 43| 1. 48| Fixed Asset Turnover| Revenue/Fixed Assets| 2. 21| 2. 10| 2. 12| Current Ratio| Current Assets/Current Liabilities| 1. 40| 1. 2| 1. 15| Debt-to-Equity | Total Debt/Total Equity| 86. 06%| 73. 08%| 81. 04%| Return on assets ratio declined in 2010. This is due to increased total assets in 2010 due to company’s acquisition of assets. In 2011, the company had a higher return on equity, which indicates that Lowe’s was able to generate more profit from the money that shareholder invested. The sales generated relative to total assets decreased in 2010, mainly due to reduced sales in 2009 coupled with increased total assets. Fixed asset turnover has been relatively good for Lowes.

The ratio indicates how well the company is able to put fixed assets to use in generating sales. Current ratio has improved over past three years indicating a strong trend for the company in its ability to pay its current liabilities with current assets. The long-term debt forms a major part of company’s financing. The company reviews its optimal mix of long-term and short-term debt regularly and substitutes one with another. Over the past three years, the use of long-term debt has fluctuated, decreasing from 2009 to 2010 and then increasing from 2010 to 2011.

The declining real estate market in 2008 and 2009 also affect Lowe’s net sales. “A weak housing market means more foreclosures, which means that home construction declines. Lowe’s sales depend on new housing construction because it provides many home builders with the materials they need to build a home” (“Lowe’s Companies,” 2010, para 12). A weak housing market and a slow economy also means that homeowners are less likely to spend money on home improvement projects. If a homeowner knows that his home is decreasing in value over time, he won’t bother to repair it to increase its value until home prices start increasing. Additionally a weak US economy means that people are saving more rather than spending on discretionary goods or projects. As a result of the weak housing market, Lowe’s net sales fell by 2. 1% in 2009 (“Lowe’s Companies,” 2010, para 12). However, when the US government gave a lucrative tax credit to home buyers, the number of pending home sales increased during the first four months of 2010. “Taking this a possible sign that the housing market was recovering, consumers spent more money on home improvement projects, and as a result Lowe’s sales increased by 4. 7% in Q1 2010” (“Lowe’s Companies,” 2010, para 13).

According to “Lowe’s Reports Fourth Quarter Sales and Earnings Results” (2011), Lowe’s sales are expected to increase five percent. If the expected sales growth represented the expected market share growth, then the following chart would represent a three-year projection of the financial statement values. in millions of $, except EPS| Jan-11| Jan-12| Jan-13| Jan-14| Current Assets| 9,967| 10,465| 10,989| 11,538| Fixed Assets| 22,089| 23,193| 24,353| 25,571| Total Assets| 33,699| 35,384| 37,153| 39,011| Current Liabilities| 7,119| 7,475| 7,849| 8,241| Long-term Liabilities| 6,537| 6,864| 7,207| 7,567|

Total Liabilities| 15,587| 16,366| 17,185| 18,044| Owner’s Equity| 18,112| 19,018| 19,968| 20,967| Revenue| 48,815| 51,256| 53,819| 56,509| EBIT| 3228| 3,389| 3,559| 3,737| Net Income| 2,010| 2,111| 2,216| 2,327| EPS| 1. 42| 1. 49| 1. 57| 1. 64| The following chart represents a three-year projection of the financial ratios. Ratios | Formula| 2011| 2012| 2013| 2014| Return on Assets| Net Income/Total Assets| 5. 96%| 5. 96%| 5. 96%| 5. 96%| Return of Equity| Net Income/Stockholders’ Equity| 11. 10%| 11. 10%| 11. 10%| 11. 10%| Asset Turnover| Revenue/Total Assets| 1. 5| 1. 45| 1. 45| 1. 45| Fixed Asset Turnover| Revenue/Fixed Assets| 2. 21| 2. 21| 2. 21| 2. 21| Current Ratio| Current Assets/Current Liabilities| 1. 40| 1. 40| 1. 40| 1. 40| Debt-to-Equity | Total Debt/Stockholders’ Equity| 86. 06%| 86. 06%| 86. 06%| 86. 06%| The S;P 500 is an index of 500 stocks chosen for market size, liquidity, and industry grouping, among other factors. “The S;P 500 is designed to be a leading indicator of U. S. equities and is meant to reflect the risk/return characteristics of the large cap universe” (“S;P 500,” 2011, para 1).

The S;P 500 is one of the most commonly used benchmarks for the overall U. S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U. S. stocks, but because the DJIA contains only 30 companies, most people agree that the S;P 500 is a better representation of the U. S. market. Data from the past five years has been collected from Lowe’s Company and the S;P 500 Index. The data was then compared with each other. The pricing comparison is shown in the chart below: The chart was obtained from Lowe’s Investor Relations: Detailed Stock Information.

The red line represents the S;P 500 and the blue line represents Lowe’s stock price. The charting trend shows that it has underperformed in comparison to the S;P index. In the past year, the stock has hit a 52-week low of $19. 35 and 52-week high of $28. 54. However, according to the charting pattern it has currently, buying signals are there but not too strong. If however, anyone is holding the stock, it is recommended that they hold the stock on a long-term basis. Overall, the financials show that Lowe’s is a relatively stable company. They did suffer substantial losses during the housing market slump.

However, since the economy has taken a positive turn, Lowe’s net sales increased from 2010 to 2011. Company management expected sales to increase by 5% by the end of the 2011 fiscal year. And although the stock price has underperformed the S;P 500, investing in the company is a good long-term investment. Reference Financial ratios (2010). Retrieved March 13, 2011, from http://www. netmba. com/finance/financial/ratios/ Investor relations (2010). Retrieved March 5, 2011, from http://investor. shareholder. com/lowes/index. cfm Lowe’s Companies, Inc. (2011). Retrieved March 5, 2011, from ttp://www. hoovers. com/company/Lowes_Companies_Inc/rfstif-1-1njdap. html Lowe’s Companies (2010), Retrieved March 13, 2011, from http://www. wikinvest. com/stock/Lowe%27s_Companies_(LOW)#Housing_Market_Not_Expected_to_Reach_Bottom_Until_2011_Means _Lowe. 27s_Faces_Tough_Road_Ahead_For_Sales_Growth Lowe’s reports fourth quarter sales and earnings results (2011). Retrieved March 5, 2011, from http://investor. shareholder. com/lowes/ReleaseDetail. cfm? ReleaseID=551811&openNews=true S&P 500 (2011). Retrieved March 13, 2011, from http://www. answers. com/topic/s-p-500#ixzz1GXGFyJxm