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1) Complete and compare an analysis, similar to that in Exhibit 7, for Lowe’s
...
4
36
...
8%
37
...
3%
capital)
11
...
9%
10
...
4%
Return on equity (Net earnings/S
...
7%
Equity)
15
...
3%
14
...
3%
Tax rate
36
...
5%
26
...
5%
28
...
8%
Cash
operating
expenses/Sales
18
...
9
%
18
...
5%
18
...
4%
2
...
1%
2
...
4%
Depreciation/P&E
8
...
5%
6
...
8%
6
...
2%
6
...
4%
7
...
1%
NOPAT
margin
(NOPAT/Sales)
3
...
3%
4
...
7%
5
...
6
capital)
2
...
3
2
...
0
P&E
turnover
(Sales/P&E)
3
...
1
2
...
6
12
...
9
12
...
7
TURNOVER
Working
(Sales/WC)
capital
3
...
1
Receivable
(Sales/AR)
turnover
85
...
5
116
...
5
4
...
1
4
...
4
21
...
5
27
...
9
29
...
3
256
...
1
277
...
0
Sales per transaction
($)
43
...
7
53
...
9
56
...
8
%
29
...
1%
17
...
8
%
17
...
6%
2
...
0%
10
...
8%
14
...
0
%
7
...
4%
4
...
52
1
...
59
1
...
6
(COGS/M
...
3
($
GROWTH
Total sales growth
Sales
growth
existing stores
for
LEVERAGE
Total Capital/Equity
*Non-interest-bearing current liabilities
1
...
4%
...
2%
...
Exhibit 3
Cost of capital calculation
Current yield on long-term
Treasuries
Historical market risk premium
U
...
4
...
5%
The Home Depot
Proportion of debt capital (market
value)
Cost of debt (Current yields of Aaarated debt)
Marginal tax rate
Cost of equity (Beta=1
...
8%
38
...
5%
12
...
4)
Weighted average cost of capital
12%
7
...
0%
12
...
6%
Accordingly WACC of Home depot is 12
...
6%
...
Therefore Home depot has the best operating performance
...
1% return to capital
...
8% lower in
2001 when compared to Home depot
...
Home depot has shown the uppermost performance in 2001
...
2001
3,865
2,063
16,033
8,816
19,898
10,879
38
...
0%
3,028
Working capital (CANIBCL*)
2001
1,133
Fixed assets
Total capital
Tax rate
NOPAT (EBIT*(1-t))
PROFITABILITY
Return on capital (NOPAT/Total 15
...
4%
Return on equity (Net earnings/S
...
8%
Equity)
15
...
6%
28
...
9%
18
...
4%
2
...
0%
6
...
2%
8
...
7%
5
...
7
capital)
P&E
(Sales/P&E)
turnover
Working
capital
(Sales/WC)
Receivable
(Sales/AR)
2
...
9
10
...
2
133
...
5
2
...
5
...
4
($
40
...
7
Sales per sq foot ($)
366
...
1
56
GROWTH
Total sales growth
Sales
growth
existing stores
Growth in new stores
17
...
7%
2
...
9%
17
...
5%
Growth in sq footage
per store
1
...
0%
1
...
3%? Look
specifically at gross margin, cash operating expenses, receivable turnover, inventory
turnover, and P&E turnover
...
1%
...
And I have changed ROC in to 12
...
Home depot ROC 2002
15
...
0%
21
...
0%
55
...
3
3
...
3%
Gross margin
Cash operating expenses/Sales
Receivable turnover
Inventory turnover
P&E Turnover
30
...
8%
9
...
1
2
...
133 Million by decreasing net operating profit after tax of 707M
...
In simply this implies that by reducing net operating profit after
tax or increasing capital the ROC can be reduced
...
Gross margin
ROC by decreasing NOPAT
...
Cash operating expenses/sales
NOPAT
, This leads to reduction of ROC
...
But ROC is
particularly sensitive to Price & Earning ratio
...
When inventory turnover ratio decreases by a small amount, ROC also
decreases radically
...
Sales growth has no impact on return to capital
...
For an example, If we increase the sales in exhibit 4,
All the accounts in exhibit 8 changes in consistence with sales
...
Therefore in conclusion sales growth does not make any implication on return to capital
...
1%
18
...
2%
17
...
3%
13
...
2%
15
...
9%
15
...
0%
16