Companies all over the globe will experience some sales and profit decrease. Home Depot in the growing housing industry benefited greatly from the houses being built. The accounting concept portrayed in this situation for home depot is called operating leverage. Operation leverage is when managers view a small change in revenue and magnify it to dramatic changes in revenue (Edmonds, Tsay, & Olds, 2011). With a decrease in the market for construction materials, Home Depot is experiencing a 3% decrease revenue and a 21% decrease in profitability.
Introduction The triple bottom line is an accounting framework that focus on 3 factors that include social equity, economic feasibility and environmental sensitivity. It was created by John Elkington in 1994 and has become a basis for a sustainable business (Miller, 2015). A sustainable business is one that creates profit, benefits the community and protects the environment These three parts are used to analyze an organizations performance. Environmental For environmental sensitivity a corporation considers their impact on the environment.
Higher values means less profit, competitive market means more possible income to earn. Paragraph
One way this can happen is by using the method of operating leverage. Cost structure condition that produces a proportionately more significant percentage change in net income for a given percentage change in revenue; measured by dividing the contribution margin by the net income and the higher the proportion of fixed cost to total costs, the higher the operating leverage (Edmonds, Tsay, & Olds, 2011). It is found that each firm has a natural rate of substitution at which it can increase fixed costs while lowering variable costs without any change in the degree of operating leverage or break-even point; however, it is possible to find a firm taking on higher levels of fixed costs with lower unit variable costs and have its degree of operating leverage and break-even point decrease (Lord, 1995). Consequently, Home Depot’s sales decreased while their earnings significantly reduced due to higher fixed costs which were negatived shaped due to the
After the US subprime lending crisis in 2008, that took a toll on the earnings of CAT from heavy equipment, CAT still relies on the construction industry as one of its main revenue streams, as seen in fig. 2. A point can be made that if Caterpillar doesn’t rely more on other revenue streams such as its financial products, a downturn in the real estate market can damage CAT’s earnings
Home Depot’s corporate-level strategy is one that is external growth based on the number of acquisitions that occurred. However, as of late, the company has conducted internal growth that has resulted in the store count of 2,250 stores in the Americas. The growth of the company started with several horizontal-related integrations. For example, Home Depot acquired National Blind & Wallpaper Factory, Maintenance Warehouse, Total Home, and Del Norte. These acquisitions increased profits almost immediately.
During our investigation, we focused on using a number of widely practiced accounting ratios in order to measure Best Buy’s profitability and its overall success as a company. When looking at the company’s current ratio, we calculated a ratio of 1.477, which illustrates that they are fairly stable in maintaining the ability to pay their short-term obligations with short-term assets. This is useful because the faster obligations are paid off, the less interest collected, and the more profit the firm sees. For the
Increasing the number of fixed costs will directly increase the break even volume because Break-Even Point = Total Fixed Costs ÷ Contribution Margin per Unit. (In Table C, the break even volume in years 2003, 2004, and 2006 is greater than that of Table A.) This indicates a higher risk for Hallstead Jewellers because with a higher fixed cost structure, they need to increase the required sales level to earn their target profit. Although the break even volume has significantly risen after increasing advertising costs, we believe that Hallstead should increase advertising costs.
In the DCF analysis shown in Exhibit B, multiple underlying assumptions must be made. First, the pro-forma for Robertson show in Exhibit 4 assumes a 6% sales growth rate per year, a conservative estimate as the industry is expecting 6-7% per year. The cost of goods sold (COGS) as a percentage of sales will gradually decrease from 69% in 2002 to 65% starting in 2006. Selling and administrative costs as a percentage of sales will decrease from 22% in 2002 to 19% starting in 2005 (Exhibit 4), and stabilize thereafter. Further assumptions in calculating the total free cash flows include that accounts receivable and accounts payable remain at the same percentage of sales as shown in 2002, 14.5% and 3.6% respectively, and that inventory stabilizes at 33% of sales starting in 2003.
Firstly, prices for new builds and overall sales rates were at the higher
This means the customers will see the same results at a cheaper
Research Significance Business research is the important method implemented by various association to attain success. One of the most problematic professional situations a person can face is not to know anything about a company. It would be disappointed when the business does not live to the expectation such as the work environment, financial stability, opportunities, and whole business practice do not meet the standard. Before following with a company, it is wise to find out about its complete monetarist health and development approaches to business values and industry name. It is important and effective for strategic leaders to foster a network of official and unofficial sources who keep them well up-to-date about what is happening within the company.
b. The major types of costs incurred by Home Depot that likely affected the decline in sales are fixed and variable costs. Fixed cost is consistent with the behavior of total costs, which are unaffected by change and when activity changes. These costs are steady regardless of whether units are produced (Edmonds, Tsay, & Olds, 2011) and while there are disadvantages to fixed costs, the major advantage is “as output increases, cost per unit decreases” (Edmonds, Tsay, & Olds, 2011, p. 57).
Introduction The main objective of this particular case study is to assist Victor Dubinski, the current CEO of Blaine Kitchenware, decide whether or not repurchasing shares and changing the firm’s capital structure in favor of more debt could actually be benefit the company and its shareholders. Blaine Kitchenware is a small cap, public company who focuses on selling various different residential kitchen appliances. Up until this point, the company has only used cash and equity financing to acquire independent kitchen appliance manufacturers, and expand into foreign markets abroad. Given their excess cash and lack of debt, Blaine Kitchenware is considered to be “over-liquid and under-leveraged” (Luehrman & Heilprin, 2009).
Higher return is expected when the business is underperforming or the company is overdiversified. The increase in price is anticipated for the seller and target or acquirer
