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.
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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