The financial statement analysis focuses on Home Depot’s 2009 and 2010 financial statements. The research focuses on the company’s vertical analysis results. The research includes a focus on the company’s horizontal analysis of the financial statements. The financial statements indicate it is profitable to invest in Home Depot.
Income Statement: Vertical Analysis
Carl Warren(125) reiterated management makes the vertical analysis by converting all the amounts in one accounting period into percentages of the sales figure. Usually, the management uses the gross sales or the net sales as the base percentage (100 percent). It would be a good move to invest in Home Depot. The vertical analysis of the income statement shows that is feasible to invest in the company. From 2008 to 2010, the gross profit is favorable at 34 percent of the net sales. The operating income data shows the company generated a 9 percent operating income in 2008. The company generated a 6 percent operating income in 2009. The company generated a 7 percent operating income in 2010.
The company generated net earnings from continuing operations amounting to 9 percent in 2008. The company generated net earnings from continuing operations amounting to 5 percent in 2009. The company generated net earnings from continuing operations amounting to 6 percent in 2010. The company generated 6 percent net earnings in 2008. The company generated a 3 percent net earnings in 2009. The company generated a 4 percent net earnings in 2010.
Income Statement: Horizontal Analysis
Jeffry Haber (144) emphasized management generates the horizontal analysis by determining the current year’s increase percentage or decrease percent over the based year. Management uses the Horizontal analysis to compare the company’s financial performance between two accounting periods or several accounting periods. The horizontal analysis shows that it would still be profitable to invest in the company. During 2009, there is a decline in the company’s earnings from continuing operations amounting to -45.80 percent of the base year, 2008.
However, the company’s earnings from continuing operations had increased to -40 percent of the base year,2008. During 2009, there is a decline in net earnings of the company amounting to -48.60 percent of the base year,2008. However, the 2010 net earnings amount shows that the company’s net earnings had increased to -39 percent in 2010.
Balance Sheet: Vertical Analysis
The balance sheet vertical analysis indicates it is profitable to invest in Home Depot. The stockholders’ equity had favorably increased from 43 percent during 2009 to 47 percent in 2010. The company’s 2010 current liabilities amounting to only 25 percent is better than the 2009 current liabilities amounting to the higher 27 percent figure.
Likewise, the 2010 current assets amounting to 34 percent increase is higher than the 2009 current assets data showing a lower 32 percent increase. Likewise, the company’s total liabilities data shows that the 2010 increase amounting to 53 percent is lower than the 2009 total liabilities increase amounting to the higher 57 percent increase.
Balance Sheet: Horizontal Analysis
The balance horizontal analysis shows that it is feasible to invest in Home Depot. The company’s current assets section has favorably increased by 4 percent from 2009 to 2010. The company’s property plant, & Equipment has favorably increased by 2 percent from 2009 to 2010. In addition, the company’s current liabilities section has decreased by 7 percent. Further, the company’s other long-term liabilities section favorably decreased by 3 percent. The company’s total liabilities section has favorably decreased by 8 percent from 2009 to 2010.
Based on the above discussion, management uses financial statements in its financial analysis. The company’s vertical analysis shows the company generated profits in 2010 and 2010. The horizontal analysis research indicates Home Depot performed better in 2010 when compared to the 2009 operations. Indeed, the financial statements indicate it is feasible to invest in Home Depot.
Works Cited
Haber, Jeffry. Accounting Demystified. London: AmaCom Press, 2004. Print
Warren, Carl. Financial and Managerial Accounting. London: Cengage Press, 2011. Print
