byp10 4 hechinger co and home depot are two home improvement retailers 535203

BYP10-4 Hechinger Co. and Home Depot are two home improvement retailers. Compared to Hechinger, founded in the early 1900s, Home Depot is a relative newcomer. But, in recent years, while Home Depot was reporting large increases in net income, Hechinger was reporting increasingly large net losses. Finally, largely due to competition from Home Depot, Hechinger was forced to file for bankruptcy. Here are financial data for both companies (in millions).

Instructions

Using the data provided, perform the following analysis.

(a) Calculate working capital and the current ratio for each company. Discuss their relative liquidity.

(b) Calculate the debt to total assets ratio and times interest earned for each company. Discuss their relative solvency.

(c) Calculate the return on assets ratio and profit margin ratio for each company. Comment on their relative profitability.

(d) The notes to Home Depot’s financial statements indicate that it leases many of its facilities using operating leases. If these assets had instead been purchased with debt, assets and liabilities would have increased by approximately $2,347 million. Calculate the company’s debt to total assets ratio employing this adjustment. Discuss the implications.