PROFITABILITY RATIOS
Gross Profit Margin
Lowe’s gross profit margin decreased slightly over the three
year period from 33.34% in 2017 to 32.12% in 2019. However,
sales increased from $65 billion in 2017 to $71 billion in 2019.
It seems the sales were increasing at a slower rate than the cost
of sales.
Home Depot’s gross profit margin remained at around 34%
between 2017 and 2019. Sales increased from $94 billion in
2017 to $108 billion in 2019. It appears that Home Depot had
better mechanisms of controlling cost of sales than Lowe’s.
Operating Profit Margin
Lowe’s operating profit increased slight from 8.99% in 2017 to
9.6% in 2018 before plummeting to 5.63% in 2019. The decline
was largely driven by an increase in selling, general, and
administrative expenses in 2019 to $17.4 billion from 14.4
billion in 2018. However, operating profit for Home Depot
remained at around 14$ billion over the three-year period. The
retailer was able to maintain its operating expenses around $21
billion, despite the increase in sales. Evidently, Home Depot
controlled its operating expenses more successfully than Lowe’s.
 PROFITABILITY RATIOS
Net Profit Margin
Net profit margin for Lowe’s dropped from 4.76% in
2017 to 3.25% in 2018, though there was a slight jump
to 5.02% in 2018. The drop was largely contributed by
the decrease in operating income. Conversely, Home
Depot reported an increase in net profit margin from
8.44% in 2017 to 10.28% in 2019. The increase was
contributed by favorable changes in operating income
and lower provisions for income taxes.
Return on Equity
Lowe’s ROE increased from 48.07% in 2017 to 63.5% in 2019.
The increase was solely attributed to a reduction in total
shareholders’ equity from $6.4 billion in 2017 to about $3.4
billion in 2019. In fact, the company recorded a decrease in net
income over the three-year period. Home Depot had mixed
performance in terms of ROE with an increase from 183% in
2017 to 593% in 2018. The retailer reported a negative ROE in
2019 after the shareholders’ equity was over-drawn. Nonetheless,
Home Depot appears to have a better ROE than the Lowe’s.
 PROFITABILITY RATIOS
Return on Assets
DuPont Analysis
ROE = Profit Margin x Total Assets Turnover x Equity Multiplier

Lowe’s Companies Inc The Home Depot, Inc

2019 2018 2017 2019 2018 2017
Net Profit Margin 0.03 0.05 0.05 0.10 0.09 0.08
Asset Turnover 2.07 1.94 1.89 2.46 2.27 2.20
Equity Multiplier 9.47 6.01 5.35 (23.43) 30.63 9.92
ROE 63.50% 58.69% 48.07% -592.17% 593.54% 183.64%

DuPont analysis helps to determine how different activities

Lowe’s ROA increased slightly from 8.99% in 2017 to 9.77% in
2018, but dropped to 6.71% in 2019. The decline was almost
entirely influenced by the decrease in net profit as total assets
were maintained at around $34 billion. It seems the company’s
ability to utilize its assets to generate income was declining over
time. Home Depot reported consistent increase in ROA from
18.52% in 2017 to 25.27% in 2019. Even though the net income
increased over the period, it is reasonable to argue that the
retailer managed its assets more efficiently than Lowe’s.
contribute to the changes in ROE. A quick look into the
Lowe’s ROE shows that it was mostly contributed by equity
multiplier, which is a factor of total assets and shareholders’
equity. Net profit margin made the least contribution to the
ROE.
Similarly, Home Depot depended significantly on the equity
multiplier for its ROE, while net profit margin had the least
contribution. The implication of this scenario is that both
retailers need to improve their net profit margin to improve its
contribution to the ROE.
 CASH FLOW ANALYSIS
Net Cash from Operations
Lowe’s net cash flows from operations increased between 2017
and 2019, though there was notable drop in 2018. The increase
was mostly contributed by adjustments in depreciation and
amortization, loss on assets, impairment of goodwill, and account
payable. The company also reported a significant jump in
merchandise inventory, though its impact on the net cash was
negligible.
Home Depot reported a steady increase in net cash from operating
activities from around $12 billion in 2017 to about $13.7 billion in
2019. The increase was largely attributable to the growth in net
earnings, as well as adjustments in depreciation and amortization,
deferred revenue, and deferred income taxes. A comparison
between the two retailers shows that Home Depot was in a better
position to finance its daily operations than Lowe’s as it held more
operating cash at the end of each financial year and reported
2017 2018 2019 consistent growth in net cash from operating activities.
Lowe's 5,617.00 5,065.00 6,193.00
Home Depot 12,031.00 13,038.00 13,723.00
 CASH FLOW ANALYSIS
Net Cash by Investing Activities

Lowe’s net cash utilized in investing activities decreased

remarkably between 2017 and 2019. The most notable change in
cash outflow was acquisition of business. In 2017, Lowe’s
acquired business at a cost of $2.356 billion, which must have
pushed up cash outflow. However, the company did not spend any
cash in 2019 for business acquisition, hence, the decline in the net
cash for investing activities.
Home Depot’s net cash used in investing activities increased
gradually from approximately $2.2 billion in 2017 to $2.6 billion
in 2019. The retailer tends to engage in few types of investing
activities, with capital expenditures accounting for more than
90%. The increase in the net cash was almost entirely contributed
by the increase in cash used for capital expenditure that rose from
2017 2018 2019 $1.9 billion in 2017 to $2.7 billion in 2019. Nonetheless, the two
Lowe's 3,361.00 1,441.00 1,080.00 retailers seem to be using considerably small percentage of their
Home Depot 2,228.00 2,416.00 2,653.00 cash in investing activities.
 CASH FLOW ANALYSIS
Net Cash by Financing Activities

Net cash used in financing activities jumped from $2 billion in 2017 to

$5.1 billion in 2019 for Lowe’s. The major activities reported were
dividend payments and repurchase of common stock. However, the
increase over the three-year period was largely attributable to proceeds
from long-term debts that were over $3.2 billion in 2017 and $2.9
billion in 2018. The company did not have any cash proceeds from
issuing long-term debt in 2019. The other financing activities remained
largely the same, except for repayment of debt that decreased markedly.
Home Depot also reported an increase in net cash used for financing
activities, with its major cash outflows being, repurchase of common
stock, cash dividends, and repayment of long-term debt. It also had a
significant cash inflow from issuing long-term debt for the three
financial years. The increase in cash outflow was largely contributed by
a jump in cash dividend payouts. A comparison between the two
2017 2018 2019 companies shows that Home Depot spent a significantly higher amount
Lowe's 2,092.00 3,607.00 5,124.00 of cash in financing activities, but the items they spend their monies in
Home Depot 8,870.00 12,420.00 10,834.00 are largely similar.
 VERTICAL COMMON SIZE ANALYSIS
Balance Sheet
LOWE'S COMPANIES, INC. THE HOME DEPOT, INC.
2017 2018 2019 2017 2018 2019
Assets
Current assets:
Cash and cash equi val ents 1.62% 1.67% 1.48% 5.91% 8.07% 4.04%
Recei vabl es, net 0.29% 0.29% 0.63% 4.72% 4.38% 4.40%
Merchandi se i nventori es 30.39% 32.28% 36.40% 29.21% 28.63% 31.65%
Other current assets 2.57% 1.95% 2.72% 1.42% 1.43% 2.02%
Total current assets 34.88% 36.19% 41.23% 41% 43% 42%
Long-term Assets:
Net property and equi pment 57.98% 55.88% 53.41% 51.00% 49.57% 50.85%
Goodwi l l 3.14% 3.70% 0.88% 4.87% 5.11% 5.12%
Other assets 2.29% 2.59% 2.88% 2.87% 2.80% 1.92%
Long-term i nvestments 1.06% 1.16% 0.74%
Deferred i ncome taxes - net 0.65% 0.48% 0.85%
Total assets 100.00% 100.00% 100.00% 100% 100% 100%
Li abi l i ti es and Stockhol ders' Equi ty
Current l i abi l i ti es:
Short-term debt 1.48% 3.22% 2.09% 1.65% 3.50% 3.04%
Accounts payabl e 19.33% 18.67% 23.99% 16.29% 16.27% 17.62%
Accrued sal ari es and rel ated expenses 2.30% 2.12% 1.92% 3.45% 3.68% 3.42%
Sal es taxes payabl e 1.18% 1.17% 1.49%
Deferred revenue 3.64% 3.90% 3.76% 3.88% 4.05% 4.05%
Income taxes payabl e 0.06% 0.12% 0.02%
Current i nstal l ments of l ong-term debt 2.31% 0.83% 3.22% 1.26% 2.70% 2.40%
Other accrued expenses 5.74% 5.53% 7.03% 5.11% 4.87% 5.93%
Long-term Total
Li abi
current
l i ti es: l i abi l i ti es 34.80% 34.28% 42.01% 32.89% 36.37% 37.99%

Long-term debt, excl udi ng current i nstal l ments 41.83% 44.10% 41.70% 52.02% 54.50% 60.92%
Deferred i ncome taxes 2.22% 2.28% 2.40% 0.69% 0.99% 1.12%
Other l i abi l i ti es 2.45% 2.71% 3.33% 4.32% 4.88% 4.24%
Owner's Equi
Totalty:
l i abi l i ti es 81.30% 83.36% 89.44% 89.92% 96.73% 104.27%

Common stock 1.26% 1.18% 1.16% 0.20% 0.20% 0.20%

Pai d-i n capi tal 0.06% 22.78% 22.89% 24.04%
Retai ned earni ngs 18.14% 15.37% 10.00% 82.67% 89.68% 105.50%
Accumul ated other comprehensi ve l oss -0.70% 0.03% -0.61% -2.02% -1.27% -1.75%
Treasury stock -93.55% -108.24% -132.25%
Total stockhol ders’ (defi ci t) equi ty 18.70% 16.64% 10.56% 10.08% 3.27% -4.27%
Total l i abi l i ti es and stockhol ders’ equi ty 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
 VERTICAL COMMON SIZE ANALYSIS
Income Statement
LOWE'S COMPANIES, INC. THE HOME DEPOT, INC.
2017 2018 2019 2016 2017 2018
Net sales 100.00% 100.00% 100.00% 100.0% 100.0% 100.0%
Cost of sales 66.66% 67.31% 67.88% 65.84% 65.95% 65.66%
Gross margin 33.34% 32.69% 32.12% 34.16% 34.05% 34.34%
Expenses:
Selling, general and administrative 22.11% 21.05% 24.42% 18.11% 17.70% 18.03%
Depreciation and amortization 2.23% 2.05% 2.07% 1.85% 1.79% 1.73%
Impairment loss 0.00% 0.00% 0.23%
Total operating expenses 19.97% 19.50% 19.99%
Operating income 8.99% 9.60% 5.63% 0 14.19% 14.55% 14.35%
Interest and investment income -0.04% -0.07% -0.09%
Interest - net 0.99% 0.92% 0.88% 1.03% 1.05% 0.97%
Other 0.00% 0.68% 0.00% 0.00% 0.00% 0.01%
Interest and other, net 0.99% 0.97% 0.90%
EBT 8.00% 8.00% 4.76% 13.20% 13.58% 13.45%
Tax expense 3.24% 2.98% 1.51% 4.79% 5.02% 3.17%
EAT 4.76% 5.02% 3.25% 8.41% 8.55% 10.28%
 References
• Lowe’s (2018). 2017 Annual Report. Retrieved from
https://www.annualreports.com/HostedData/AnnualReportArchive/l/NYSE_LOW_2017.pdf
• SEC (2019a). Form 10K: The Home Depot, Inc. for the fiscal year ended February 3, 2019. Retrieved
from
https://www.sec.gov/Archives/edgar/data/354950/000035495019000010/hd_10kx02032019.htm#sD657
D90451BD501E88301B9FC69093FB
• SEC (2019b). Form 10K: Lowe’s Companies, Inc. for the for the fiscal year ended February 3, 2019.
Retrieved from
https://www.sec.gov/Archives/edgar/data/60667/000006066719000042/form10k_02012019.htm#s53706
F653E0950498247CC7FA6CEE253
• The Home Depot (2018). Annual Report 2017. Retrieved from
https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/2018_Proxy_Updates/HD_AR_Soft-Copy.pdf