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Accounting Assignment, Accounting Basics

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Go to https://moneycentral.msn.com and look up the companies Lowe’s (symbol: LOW) and Home Depot (symbol: HD).

To the left, you will see several different tabs. At the bottom, you will see one titled “FINANCIALS”. Below this header is a link to Income Statement, Balance Sheet and Statement of Cash Flow. Each of these tabs will give you five years’ worth of financial information.

1. Below are ten financial ratios. Run the following ratios for the past THREE years on both companies. You MUST show all computations to receive credit for this part.
1) Current ratio = Current assets / Current liabilities

2) Quick ratio = Cash, short-term investments, and net receivables / Current liabilities

3) Current cash debt ratio = Net cash provided by operating activities / Average current liabilities

4) Receivables turnover = Net sales / Average trade receivables (net)

5) Inventory turnover = Cost of good sold / Average inventory

6) Asset turnover = Net sales / Average total assets

7) Profit margin on sales = Net income / Net sales

8) Rate of return on assets = Net income / Average total assets

9) Debt-to-total assets ratio = Total liabilities / Total assets

10) Cash debt coverage ratio = Net cash provided by operating activities / Average total liabilities


2. Using your interpretations of the ratios above, answer the questions below. (Note: you must explain which ratio(s) you used and how you applied that ratio to determine each answer).

a) Which company is more liquid?
b) Which company is doing a better job of managing receivables?
c) Which company is doing a better job of managing inventory?
d) Which company is better utilizing its assets?
e) Which company is better able to meet their debt obligations?

3. Go back to https://moneycentral.msn.com and go to the links on the left. Under the “FUNDAMENTALS” tab, you will find SEC Filing information for each company. Retrieve the 10-K’s for both companies for the most recent year.


Answer the following questions:

a) What is the difference between the 10K, the 10Q and the 8K reports?

b) How does each company value its inventory (FIFO, LIFO, etc….)

c) How does each company establish their Allowance for Doubtful accounts?

d) Does each company appear to fully disclose anything that can impact future performance

e) Is either company in jeopardy of being a going concern? (Please see the article I have posted about the “Growing Concern of Going Concern” over things you should evaluate to make this determination.


4) List two things that would be different if the financials for either company were prepared using IFRS. Be sure to thoroughly cite all sources used to answer this question.

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