Home Depot Inc.: Financial Analysis Paper

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Financial Health of The Home Depot, Inc. Financial Health of The Home Depot, Inc. The financial health of a business is a very important aspect to consider for analysts, creditors and investors. The use of financial records such as a company’s balance sheet along with comparative charts such as a vertical and horizontal analysis can shed light on how a company is managing their assets and liabilities. An analyst, creditor, or investor can also get a deeper understanding of a company’s financial health by reviewing ratios that indicate their liquidity such as their current ratio, quick ratios, and cash ratio. In this paper I will analyze and address the financial health of The Home Depot Inc. by utilizing various different financial statements records and ratios to formulate a final recommendation for…show more content…
Liquidity measures a company’s ability to pay off short-term obligations. This is done by comparing their assets to their short-term liabilities. These ratios can tell if a company is able to pay its short-term liabilities and still be able to cover operating expenses. One ratio that is important to look at is the current ratio. This ratio is calculated by dividing a company’s current assets by their current liabilities. For the year of 2013 Home Depot reported their current assets to be $15,372 and their current liabilities to be $11,462. That gave them a current ratio of 1.34:1. For the year 2014 Home Depot reported their current assets to be $15,279 and their current liabilities to be $10,749. That gave them a current ratio of 1.42:1. When assessing a current ratio most people look for a ratio of 2:1 or greater. Although Home Depot did show improvement from 2013 to 2014 in their ratio, they still did not reach the 2:1 ratio in either year. This could be a red flag for analysts, creditors, and investors. (Principles,

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