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18.4
5.2
1.4




81 82 83 84 85 81 82 83 84 85 81 82 83 84 85


TOTAL ASSETS CUSTOMER COUNT SQUARE FOOTAGE
$ in millions millions millions
23.3
380.2




4.0
249.4




14.3




2.4
8.5




1.4
105.2
33.0




1.9
16.9




4.2




.7
.6




81 82 83 84 85
81 82 83 84 85 81 82 83 84 85


NUMBER OF NUMBER OF NUMBER OF
MARKETS STORES EMPLOYEES
AT YEAR END
15




50




5.4




thousands
11




4.0
31
7




2.4
19
5




1.1
10
8
2




.7




81 82 83 84 85 81 82 83 84 85 81 82 83 84 85
354 Financial Analysis




9-38
Financial Analysis




EXHIBIT 2
The Home Depot™s Common Stock Price and Standard & Poor™s 500
Composite Index from January 1985 to February 1986

Home Depot S&P 500
Date Stock Price Composite Index
.........................................................................................................................

1/2/85 $17.125$ 165.4
2/1/85 16.375 178.6
3/1/85 19.000 183.2




The Home Depot
4/1/85 17.000 181.3
5/1/85 18.000 178.4
6/3/85 16.125 189.3
7/1/85 13.000 192.4
8/1/85 12.625 192.1
9/2/85 11.875 197.9
10/1/85 11.375 185.1
11/1/85 10.750 191.5
12/2/85 11.000 200.5
1/2/86 12.625 209.6
2/3/86 13.125 214.0

Cumulative Return: “23.4% 29.4%
.........................................................................................................................
The Home Depot™s ß = 1.3 ( Value Line estimate).

The Home Depot™s Common Stock Price and Standard & Poor™s 500 Composite Index
355
Financial Analysis




9-39 Part 2 Business Analysis and Valuation Tools




EXHIBIT 3
The Home Depot, Inc. “ Summary of Financial Performance of Hechinger
Company

I. HECHINGER™S FINANCIAL RATIOS

Year Ending
.......................................................................
February 1, February 2, January 28,
1986 1985 1984
.....................................................................................................................................
The Home Depot




Pro¬t Before Taxes/Sales (%) 7.80 9.40 9.80
— Sales/Average Assets 1.48 1.72 2.02
— Average Assets/Average Equity 2.21 2.12 1.79
— (1 ’ Average Tax Rate) 0.62 0.55 0.54
= Return on Equity (%) 15.80 18.90 19.10
— (1 ’ Dividend Payout Ratio) 0.93 0.95 0.95
= Sustainable Growth Rate (%) 14.70 18.00 18.10

Gross Pro¬t/Sales (%) 29.30 30.10 32.10
Selling, General and Administrative
Expenses/Sales (%) 21.60 21.10 22.90
Interest Expenses/Sales (%) 2.10 1.30 0.70
Interest Income/Sales (%) 2.20 1.70 1.30
Inventory Turnover 4.50 4.50 4.40
Average Collection Perioda (Days) 32.00 33.00 35.00
Average Accounts Payable Periodb
(Days) 58.00 61.00 63.00
.....................................................................................................................................
a. Assumed 365 days in the fiscal year.
b. Payables also include accrued wages and expenses. Purchases are computed as cost of sales plus increase in
inventory during the year. Assumed 365 days in the fiscal year.
356 Financial Analysis




9-40
Financial Analysis




II. HECHINGER™S CASH FLOW

Year Ending
....................................................................
February 1, February 2, January 28,
(Dollars in Thousands) 1986 1985 1984
...................................................................................................................................................

Cash Provided from Operations
Net earnings $23,111 $20,923 $16,243
Items not requiring the use of cash or marketable
securities:




The Home Depot
Depreciation and amortization 6,594 4,622 3,429
Deferred income taxes 1,375 2,040 1,515
Deferred rent expense 2,321 2,064 1,463
33,401 29,649 22,650
Cash Invested in Operations
Accounts receivable 4,657 7,905 7,954
Merchandise inventories 17,998 8,045 20,596
Other current assets 4,891 3,760 1,304
Accounts payable and accrued expenses (6,620) (12,099) (9,767)
Taxes on income “ current 285 3,031 (575)
21,211 10,642 19,512
Net Cash Provided from Operations 12,190 19,007 3,138
Cash Used for Investment Activities
Expenditures for property, furniture and equipment,
net of disposals, and other assets (36,037) (25,531) (16,346)

Cash Used to Pay Dividends to Shareholders (1,550) (1,091) (868)

Cash Provided from Financing Activities
Proceeds from public offering of 81„2% converted
subordinated debentures, net of expenses ” 85,010 ”
Proceeds from public offering of common stock net
of expenses 28,969 ” 13,439
Proceeds from sale and leaseback transactions
under operating leases ” 8,338 6,874
Increase (decrease) in long-term debt ” (4,750) 6,366
Decrease in short-term debt ” ” (318)
Exercise of stock options including income tax
bene¬t 180 674 611
Decrease in capital lease obligations (311) (280) (254)
28,838 88,992 26,718
Increase in Cash and Marketable Securities $ 3,441 $81,377 $12,642

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