Home Depot on track

Home Depot stores sell a wide assortment of building materials, home improvement products, garden products and provide a number of services. It was incorporated in 1978 and is the world’s largest home improvement retailer based on net sales for the fiscal year ended February 2, 2014.

Continuous growth in turnover

Home Depot’s recent financial results show rise in net sales of company to $78.812 Million in fiscal year 2013. Further, if we go into detail we could observe that company’s turnover has increased by $12.587 million in last 5 year, a huge growth of 19%. Similarly, looking at the results of latest quarter (Quarter end May 4, 2014) company manages to get net sales of ($19,687 million), an increase by 3% as compared to net sales in the same period last year.

Marinating profitability ratio and posting higher earnings due to increase in turnover

Home Depot has posted higher net profit each year as we witness consistent growth in turnover and at the same time its ability to maintain its net profit ratio. Company’s net profit have increased by 92% in last 5 years which shows the pace at which company is growing resulting in net profit of $5.385 million for fiscal year 2013. As per market consensus and analysis of past trends company’s revenues and net profit are expected to further grow in future.

Another aspect of looking at company’s performance graph is its EPS. Home Depot’s EPS ($3,760/ share for FY 2014) has advanced remarkably over the years, as it jumped by 21% in last one financial year alone and by 127% in last 5 years. Building on these results, company is expected to further improve its EPS in coming years.

Liquidity requirements / Net Debt and Dividend

Total history stock Home Depot

Source: Reuters

One alarming point for the company’s capital structure is that it has increased its debts significantly to cater its liquidity requirements. As at end of financial year 2014, company’s liabilities stood at $12.795 million, an increase by 54% in just one financial year. However, positive sign for shareholders is that company continues to pay healthy dividend ($1,640 per share in FY Jan 2014) on a consistent basis combined with growth in dividend each year with same expectations for future.

Conclusion

If we summarize the financial results of Home Depot, we could say that the company is doing exceptionally well, as company is constantly growing its revenue and at the same time maintaining its profitability ratio to achieve perpetual growth in its net earnings, EPS, ROA and ROE. Further in addition to capital appreciation, shareholders are directly benefiting from company’s performance by getting higher dividends each year. However, one alarming point for the company is exceptional amount of increase in debt in latest financial year.