Complete 6 pages APA formatted article: 2008 Annual Report of The Home Depot Inc. To illustrate, HDI’ profitability in the last two years from 2008 to 2009 is evident with its average return on equity (ROE) at 19%. The said rate can show a clear advantage over competitors regarding its past performance for the past two years is clear if compared with the industry average of 7.64% as per Reuters (2011). See Appendix A for more details.
To expect a 19% return on equity (ROE) sounds encouraging when other businesses were producing lower profitability given the situation in the economy in 2008 which appeared to have been affected by the financial crisis of 2007 to 2009. Such a level of high profitability would seem to show that the company had been above the economic recession (Samuelson, P. and Nordhaus, 1992) that the financial statements do confirm what happened in 2008. Viewed differently, an investor is just like putting his or $100 in investment with HDI while expecting $19 in return every year which should be high enough. See Appendix A for more details. Calculated by dividing net profit to the total stockholders’ equity or shareholders’ funds, ROE should tell any right thinking investor on whether it should invest, continue investing or find another (Johnson, et al, 2003).
Return on assets (ROA) measures how the management makes use of assets is another way to evaluate HDI in terms of management’s profitability. The same can also be used to check efficiency in the utilization of resources. HDI exhibited a two-year ROA average of 8% which may be again compared against the industry average of 3.9%, thus indicating better efficiency. See Appendix A.
The balance sheet tells about the financial condition of the company as of given date. Generally, the financial condition should tell about the liquidity and solvency of the company. Liquidity is the capacity to meet maturing obligations in the short term while solvency is for the long-term (Johnson, et al, 2003).