Long-term Debt and Solvency Analysis

Difficulty level: Basic

Solvency ratios also known as long-term debt ratios measure a company's ability to meet long-term obligations.


Ratios (Summary)

Lowe's Cos. Inc., debt and solvency ratios

 
Jan 30, 2015 Jan 31, 2014 Feb 1, 2013 Feb 3, 2012 Jan 28, 2011 Jan 29, 2010
Debt to equity 1.14 0.89 0.66 0.46 0.36 0.27
Debt to capital 0.53 0.47 0.40 0.32 0.27 0.21
Interest coverage 9.30 8.75 8.35 8.67 10.49 10.42

Source: Based on data from Lowe's Cos. Inc. Annual Reports

Ratio Description The company
Debt-to-equity ratio A solvency ratio calculated as total debt divided by total shareholders' equity. Lowe's Cos. Inc.'s debt-to-equity ratio deteriorated from 2013 to 2014 and from 2014 to 2015.
Debt-to-capital ratio A solvency ratio calculated as total debt divided by total debt plus shareholders' equity. Lowe's Cos. Inc.'s debt-to-capital ratio deteriorated from 2013 to 2014 and from 2014 to 2015.
Interest coverage ratio A solvency ratio calculated as EBIT divided by interest payments. Lowe's Cos. Inc.'s interest coverage ratio improved from 2013 to 2014 and from 2014 to 2015.

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Debt to Equity

Lowe's Cos. Inc., debt to equity calculation, comparison to benchmarks

 
Jan 30, 2015 Jan 31, 2014 Feb 1, 2013 Feb 3, 2012 Jan 28, 2011 Jan 29, 2010
Selected Financial Data (USD $ in millions)
Short-term borrowings 386 
Current maturities of long-term debt 552  49  47  592  36  552 
Long-term debt, excluding current maturities 10,815  10,086  9,030  7,035  6,537  4,528 
Total debt 11,367  10,521  9,077  7,627  6,573  5,080 
Shareholders' equity 9,968  11,853  13,857  16,533  18,112  19,069 
Ratio
Debt to equity1 1.14 0.89 0.66 0.46 0.36 0.27
Benchmarks
Debt to Equity, Competitors
Home Depot Inc. 1.84 1.18 0.61 0.60 0.52 0.50
Debt to Equity, Sector
Home Improvement Retailers 1.04 0.63 0.53 0.44 0.38
Debt to Equity, Industry
Consumer Services 0.71 0.62 0.58 0.54 0.48

Source: Based on data from Lowe's Cos. Inc. Annual Reports

2015 Calculations

1 Debt to equity = Total debt ÷ Shareholders' equity
= 11,367 ÷ 9,968 = 1.14

Ratio Description The company
Debt-to-equity ratio A solvency ratio calculated as total debt divided by total shareholders' equity. Lowe's Cos. Inc.'s debt-to-equity ratio deteriorated from 2013 to 2014 and from 2014 to 2015.

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Debt to Capital

Lowe's Cos. Inc., debt to capital calculation, comparison to benchmarks

 
Jan 30, 2015 Jan 31, 2014 Feb 1, 2013 Feb 3, 2012 Jan 28, 2011 Jan 29, 2010
Selected Financial Data (USD $ in millions)
Short-term borrowings 386 
Current maturities of long-term debt 552  49  47  592  36  552 
Long-term debt, excluding current maturities 10,815  10,086  9,030  7,035  6,537  4,528 
Total debt 11,367  10,521  9,077  7,627  6,573  5,080 
Shareholders' equity 9,968  11,853  13,857  16,533  18,112  19,069 
Total capital 21,335  22,374  22,934  24,160  24,685  24,149 
Ratio
Debt to capital1 0.53 0.47 0.40 0.32 0.27 0.21
Benchmarks
Debt to Capital, Competitors
Home Depot Inc. 0.65 0.54 0.38 0.38 0.34 0.33
Debt to Capital, Sector
Home Improvement Retailers 0.51 0.39 0.35 0.31 0.28
Debt to Capital, Industry
Consumer Services 0.42 0.38 0.37 0.35 0.32

Source: Based on data from Lowe's Cos. Inc. Annual Reports

2015 Calculations

1 Debt to capital = Total debt ÷ Total capital
= 11,367 ÷ 21,335 = 0.53

Ratio Description The company
Debt-to-capital ratio A solvency ratio calculated as total debt divided by total debt plus shareholders' equity. Lowe's Cos. Inc.'s debt-to-capital ratio deteriorated from 2013 to 2014 and from 2014 to 2015.

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Interest Coverage

Lowe's Cos. Inc., interest coverage calculation, comparison to benchmarks

 
Jan 30, 2015 Jan 31, 2014 Feb 1, 2013 Feb 3, 2012 Jan 28, 2011 Jan 29, 2010
Selected Financial Data (USD $ in millions)
Net earnings 2,698  2,286  1,959  1,839  2,010  1,783 
Add: Income tax expense 1,578  1,387  1,178  1,067  1,218  1,042 
Add: Interest expense, net of amount capitalized 515  474  427  379  340  300 
Earnings before interest and tax (EBIT) 4,791  4,147  3,564  3,285  3,568  3,125 
Ratio
Interest coverage1 9.30 8.75 8.35 8.67 10.49 10.42
Benchmarks
Interest Coverage, Competitors
Home Depot Inc. 13.02 12.91 12.43 11.01 10.95 6.89
Interest Coverage, Sector
Home Improvement Retailers 11.24 10.78 10.11 10.77 7.97
Interest Coverage, Industry
Consumer Services 9.81 10.35 9.47 9.55 8.70

Source: Based on data from Lowe's Cos. Inc. Annual Reports

2015 Calculations

1 Interest coverage = EBIT ÷ Interest expense
= 4,791 ÷ 515 = 9.30

Ratio Description The company
Interest coverage ratio A solvency ratio calculated as EBIT divided by interest payments. Lowe's Cos. Inc.'s interest coverage ratio improved from 2013 to 2014 and from 2014 to 2015.

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