Financial statement analysis and common stock valuation

Balance Sheet: Liabilities and Stockholders’ Equity
Quarterly Data

The liabilities and stockholders’ equity reports major classes and amounts of external claims on assets and owners’ capital contributions, and other internally generated sources of capital.

Analysis of Geographic Areas

Home Depot Inc. operates in 2 regions: In the U.S. and Outside the U.S..

• Area Asset Turnover
• Net property and equipment
• Net sales

Income Statement

The income statement (statement of earnings) reports on the performance of Home Depot Inc., the result of its operating activities.

Statement of Comprehensive Income

Comprehensive income is the change in equity (net assets) of Home Depot Inc. during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Cash Flow Statement
Quarterly Data

The cash flow statement provides information about Home Depot Inc. cash receipts and cash payments during an accounting period, showing how these cash flows link the ending cash balance to the beginning balance shown on Home Depot Inc. balance sheet.

Capital Asset Pricing Model (CAPM)

CAPM is a theory concentrated with deriving the expected rates of return on risky assets based on the assets’ systematic risk levels. Systematic risk is the variability of returns that is due to macroeconomic factors that affect all risky assets. It cannot be eliminated by diversification.

• Rates of Return
• Variance and Covariance
• Systematic Risk (β) Estimation
• Expected Rate of Return

Analysis of Liquidity Ratios
Quarterly Data

Measures the adequacy of a Home Depot Inc. cash resources to meet its near-term cash obligations.

• Liquidity Ratios (Summary)
• Current Ratio
• Quick Ratio
• Cash Ratio

Enterprise Value to EBITDA (EV/EBITDA)

To calculate EBITDA analysts start with net earnings. To that earnings number, interest, taxes, depreciation, and amortization are added. EBITDA as a pre-interest number is a flow to all providers of capital.

• Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)
• EV to EBITDA Ratio, Current
• EV to EBITDA Ratio, Historical

Analysis of Short-term (Operating) Activity Ratios
Quarterly Data

Evaluates revenues and output generated by the Home Depot Inc. assets. Operating performance ratios describe the relationship between the Home Depot Inc. level of operations and the assets needed to sustain operating activities.

• Short-term Activity Ratios (Summary)
• Inventory Turnover
• Receivables Turnover
• Payables Turnover
• Working Capital Turnover
• Average Inventory Processing Period
• Average Receivable Collection Period
• Operating Cycle
• Average Payables Payment Period
• Cash Conversion Cycle

Analysis of Revenues

• Revenues as Reported

DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Quarterly Data

An approach to decomposing Home Depot Inc. return on equity, return on assets, and net profit margin ratio as the product of other financial ratios.

• Two-Component Disaggregation of ROE
• Three-Component Disaggregation of ROE
• Five-Component Disaggregation of ROE
• Two-Component Disaggregation of ROA
• Four-Component Disaggregation of ROA
• Disaggregation of Net Profit Margin

Present Value of Free Cash Flow to Equity (FCFE)

The FCFE valuation approach estimates the value of equity as the present value of future FCFE discounted at the required rate of return on equity.

• Intrinsic Stock Value (Valuation Summary)
• Required Rate of Return (r)
• FCFE Growth Rate (g)