Home Depot Is Relatively Strong

Home Depot is relatively strong financially. They have decent liquidity ratios with a current ratio of 1.21 and a quick ratio of 0.29. The quick ratio would be considered low except that HD has a strong interest coverage ratio of 13.47, meaning that it takes less than a month to cover the interest expense of the entire year. The firm has a debt-to-equity ratio of 61.8%, which is in the ideal capital structure range for a relatively stable (beta = 0.65), relatively mature (revenue growth of less over the last two years) company. Revenues are stabilizing even as the company continues to expand, indicating a decline in same store sales, a key measure of success in the retail world.

Home Depot's margins are strong. They have a gross margin of 33.74%, with a five-year average gross margin of 33.26%. That exceptional margin stability is superior to both industry and sector groups, both of which have seen a steep decline in margins in the past year vs. their five-year averages. Other margins are also better than those in their peer group, but are relatively low, reflecting the volume-driven nature of the business Returns on assets, equity and investment are all superior to industry and sector averages. The biggest area of weakness for Home Depot's financials is their sluggish inventory turn, at just 4.03 times. Their asset turn of 1.66 times is better and their receivables turn is outstanding.

The Home Depot utilizes a bureaucratic structure. They break down units by function, with ancillary geographic breakdowns. There are five of these - northern, southern, western, Mexico and Canada/Asia. These are subordinated, however, to the primary functional units within HD's organizational structure are Merchandising, Human Resources, Enterprise Program Management, Retail Finance, it, and Investor Relations. After these functional breakdowns, there are several sub-breakdowns, but the bureaucratic, hierarchical structure is maintained.

Home Depot's management team is in a state of transition. The bulk of their Board and Executive group have been brought into their current positions within the past two years. The longest-serving member of Home Depot's executive team is Ricardo Saldivar, President of Home Depot Mexico, who ascended to that position in 2006. The group is overwhelmingly white and male, but each team member has significant experience in the corporate world. Thirteen of 15 Board members are independent, and each has substantial business experience.