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Debt and price-earnings ratios The Home Depot, Inc. (HD) operates over 2,200 home improvement retail stores...

Debt and price-earnings ratios

The Home Depot, Inc. (HD) operates over 2,200 home improvement retail stores and is a competitor of Lowe's (LOW). The following data (in millions) were adapted from recent financial statements of The Home Depot.

Year 2 Year 1
Total assets $39,946 $40,518
Total liabilities 30,624 27,996
Total stockholders’ equity 9,322 12,522
Earnings per share $4.74 $3.78

1. Compute the debt ratio for Years 1 and 2. Round to one decimal place.

Year 2 Year 1
Debt ratio % %

2. Given your answer to part (1), what is the ratio of stockholders' equity to total assets? Round to one decimal place.

Year 2 Year 1
Ratio of stockholders' equity to total assets % %

3. Compute the ratio of liabilities to stockholders' equity. Round to one decimal place.

Year 2 Year 1
Ratio of liabilities to stockholders' equity %

%

4. With a market price of $104.43, compute the price-earnings ratio for Year 2. Round to one decimal place.

5. With a market price of $75.09, compute the price-earnings ratio for Year 1. Round to one decimal place.

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Answer #1

1. Compute the debt ratio for Years 1 and 2. Round to one decimal place.

Year 2 Year 1
Debt ratio 30624/39946 = 76.7% 27996/40518 =69.1 %

2. Given your answer to part (1), what is the ratio of stockholders' equity to total assets? Round to one decimal place.

Year 2 Year 1
Ratio of stockholders' equity to total assets 9322/39946 = 23.3% 12522/40518 = 30.9%

3. Compute the ratio of liabilities to stockholders' equity. Round to one decimal place.

Year 2 Year 1
Ratio of liabilities to stockholders' equity 30624/9322 = 328.5%

27996/12522 = 223.6%

4. With a market price of $104.43, compute the price-earnings ratio for Year 2.

Price earning ratio = 104.43/4.74 = 22.0 Times

5. With a market price of $75.09, compute the price-earnings ratio for Year 1.

Price earning ratio = 75.09/3.78 = 19.9 Times

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