Analyze The Financial Ratios For Lowe's

Financial Ratios for Lowe's Companies post financial reports not only because it is the law but, because it is a standard means that potential investors have of analyzing whether the company is a viable investment option. However, with all the information available in a 10k, it can be difficult to compare one company to either another company, or the sector. This is where ratios come into play. Ratios are used to compare one company to another. While they cannot be used to predict future performance, they can be an effective tool to let an investor know how the company has done in the past (Bethel University, 2017). Below are eight of the most commonly used ratios to analyze a company’s financial performance.

Cash Ratio
558/11,974 = .046

In 2016, Lowe’s has $81.00 dollars of debt for every $100.00 of assets. Lowe’s is actually in a stronger position when compared to Home Depot’s debt to assets ratio of .899 (Home Depot, 2017).

Receivable Turnover Ratio
Because Lowe’s does not offer customers any form of in-house financing, they do not have a receivable turnover ratio. However, Home Depot does have accounts receivable of over two billion dollars. With more than 17 million customers every week, this might be an area that Lowe’s should look to change their strategy (Lowe’s History, 2016). Inventory Turnover Ratio
(Average inventories - 9458 + 10458 = 19,916 / 2 = 9958)
42,553 / 9,958 = 4.27
365/4.27 = 85.48
Every retail business must have an inventory; however, they are not making money if the inventory is sitting on the shelf. Retail businesses must turn their inventory over. That is why the inventory turnover ratio is such an important indicator of the health of a retail business. Lowe’s has an inventory turnover ratio of 4.27. This indicates that, on average, it takes Lowe’s 85 days to get product on and back off the shelf. turns its inventory over 4.27 times per year, or once every 85

The ROE lets them know that for every dollar invested in Lowe’s, $.44 was earned. While Lowe’s has still not reached the ROE of Home Depot, they have drastically improved over their 2014 ROE of 24.73% (Bethel University, 2017).

Net Profit Margin
3,093 / 65,017 = .05 = 5%
The net profit margin lets investors and creditors know exactly how much profit was made from every dollar of sales. Lowe’s reported on February 3, 2017 that for every $1.00 of sales that were made at their stores, just five cents of net profit were realized. This seems to be the industry norm because it is within a few percentage points of their year over year, as well as consistent with Home Depot’s net profit margin (Bethel University, 2017).

Return on Assets
(Average Total Assets - 31,266 + 34,408 = 65,674 / 2 = 32,837)
3093 / 32,837 = .0941 = 9.41% The ROA is another ratio that helps would be investor determine a company’s profitability. For every $1.00 reported on Lowes’ balance sheet, the company earned $.09. This is well below Home Depot’s ROA of .19 (Home Depot, 2017). The quick analysis that was conducted during the last few weeks on Lowe’s would lead me to think that there are stronger investments available within the same