emily yetzer acg2021-004. executive summary lowe’s has had a great 2005 year. they have had a 19...

Emily YetzerACG2021-004

Executive SummaryLowe’s has had a great 2005 year. They have had a 19 percent sales growth and a 27 percent net earnings growth. As one of the top home improvement chains Lowe’s continues to be prosperous in the industry due to their constant attention to the needs of their customers and their investments into their expansion. Due to Lowe’s strong drive and performance, i n 2005, Lowe's earned several notable industry distinctions, including:

• Ranked 42 on the FORTUNE® 500• Named 2003, 2004 and 2005 ENERGY STAR® Retail Partner of the Year• Operates more than 1,234 stores in 49 states

http://www.shareholder.com/lowes/annual.cfm

Introduction• Robert A. Niblock, Chief Executive Officer• Lowe’s home office is located at 1000 Lowe’s Boulevard, Mooresville, NC 28117• Lowe’s ending date of the latest fiscal year is February 03, 2006• Lowe’s carries a variety of products to assist in the home improvement process such as

lumber, flooring, paint, plumbing, tools, lighting, landscaping products, cabinets, electrical and much more.

IndependentAuditors

Deloitte & Touche LLP

1100 Carillon Building227 West Trade Street

Charlotte, NC 28202-1675

Lowe’s was audited in accordance to the standards of the Public Company Accounting Oversight Board and found that Lowe’s records were accurately and fairly translated. The auditors conclude that Lowe’s has maintained effective internal control over financial reporting as of February 3, 2006.

• Lowe’s stock price listed in the NYSE is $28.37 per share

• Twelve month trading range of the company’s stock

• Dividend per share, annually $0.22• This information was found on

September 27, 2006• In my opinion Lowe’s is a good

investment. The company continues to grow and improve and is a stable investment.

Stock Market Information

High 34.85

Low 26.15

1 day-September 27, 2006

1 year-2006

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Industry Situation and Company Plans

The U.S. has hit a record high of homeownership, all who would like to personalize their homes. Lowe’s is here to help. Lowe's, who has been a leader in the home improvement industry for the past 60 years and has recently implemented a new program, for those who need help or do not have the time for “do-it-yourself” projects, the program is called “do-it-for-me”. By offering this new program Lowe’s has estimated the program to draw a $150 billion dollar revenue. Not only is Lowe's growing internally but continues to grow externally as well by opening 150 new stores this year with a continued expansion plan of 155 stores opening in 2006.

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Lowe’s has continued to have significant increases in income over the past three years. Due to these consistent increases one can only believe that the future of this company will be very promising.

(In millions)

Years ended onFebruary 3, 2006 January 28, 2005 January 30, 2004

Net Sales $43,243 $36,464 $30,838

Gross Margin 14,800 12,256 9,569

Total Expenses 10,294 8,720 6,625

Earnings from Continuing Operations

2,771 2,176 1,829

Net Earnings $2,771 $2,176 $1,844

Lowe’s gross profit, income from operations, and net income for the last three years.

Multi-Step Income Statement


Lowe’s Assets, Liabilities and Stockholders’ Equity for the past two years.

The biggest change on the balance sheet is the increase in stockholders’ equity from the fiscal 2005 to 2006 year. Stockholders’ equity represents the capital received from investors in exchange for stock and also includes retained earnings. Therefore the change in stockholder’s equity is a result of the stockholders’ investments.

Balance Sheet


(in millions) February 3, 2006 January 30, 2005

Total Assets

(=)$24,682 $21,138

Total Liabilities (+)

10,343 9,603

Total Stockholders Equity 14,339 11,535

•Cash flow refers to the amount of cash being received and spent by a business during a defined period of time. Lowe’s cash flow from operations is significantly larger than the net income for the past two years.

•Lowe’s has a deficit in investing activities because of the “fixed assets acquired” account which is an asset which possesses a physical form and is intended to be used in the business on a long term basis in order to earn income or to produce outputs growing through investing activities. So the deficit from 2004 to 2005 shows that Lowe's is investing money to make money.

•Lowe’s primary source of financing is through long-term loans.

•Overall cash has decreased over the past three years.

(In millions) 2005 2004 2003

Net cash provided by

operating activities

$3,842 $3,073 $3,034

Net cash used in investing

activities(3,674) (2,362) (2,487)

Net cash used in financing

activities(275) (1,047) (17)

Net (decrease) increase in

cash and cash equivalents

(107) (336) 530

Cash and cash equivalents, beginning of

the year

530 866 336

Cash and cash equivalents end

of the year$423 $530 $866

Statement of Cash Flow


Significant Accounting Policies

Revenue RecognitionThe company recognized revenues, net of sales tax when sales transactions occur and customers take possession of the merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded.

Cash Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of 3 month or less when purchased.

Short-Term InvestmentsInvestments, exclusive of cash equivalents, with a stated maturity date of one year or less from the balance sheet date or that are expected to be used in current operations, are classified as short-term investments.

InventoriesManagement does not believe the Company’s merchandise inventories are subject to significant risk in the near term but does have the ability to adjust based on anticipated sales trends.

Property and EquipmentProperty is recorded at cost. Costs associated with major additions are capitalized and depreciated.


Accounting Policies



Notes To Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies

Note 2 Discontinued Operation

Note 3 Investments

Note 4 Accumulated Depreciation

Note 5 Impairment and Store Closing Costs

Note 6 Short-Term Borrowings and Lines of Credit

Note 7 Long Term Debt

Note 8 Financial Instruments

Note 9 Earnings Per Share

Note 10 Shareholder’s Equity

Note 11 Leases

Note 12 Employee Retirement Plan

Note 13 Income Taxes

Note 14 Commitments and Contingencies

Note 15 Other Information

Accounting Policies




Working Capital:


Current Assets (-) $7,831 $6,903

Current Liabilities (=)

$5,832 $5,648

Total $1,999 $1,255


Current Assets (/) $7,831 $6,903

Current Liabilities (=)

$5,832 $5,648

Total 1.34 1.22

Financial Analysis Liquidity Ratio


Average Days’ Sales Uncollected:

Current Ratio:

Receivable Turnover:

Inventory Turnover:

Average Days’ Inventory on Hand:


Net Sales (/) $43,243 $36, 464

Average Accounts Receivable (=)

(18+9)/2 9

Total 3203.2 times 4051.6 times


Days in a Year (/) 360 360

Receivable Turnover (=)

3203.2 4051.6

Total 0.112 days 0.089 days


Cost of Goods Sold (/)

$28,443 $24,208

Average Inventory (=)

($6,706+$5,911)/2 $5,911

Total 4.51 times 4.1 times


Days in Year (/) 360 360

Inventory Turnover (=)

4.51 4.1

Total 79.8 days 87.8 days

Profit Margin:Profit margin measures how much out of every dollar of sales a company actually keeps in earnings. Lowe’s has increased their earnings over the past two years showing that their income and sales are growing at a consistent rate..

Asset Turnover:Asset turnover measures how well assets are being used to produce revenue. Lowe’s asset turnover increases progressively with their sales, which means they use their assets productively.

Return on Assets:

Return on Assets shows how many dollars of profits the company can achieve for each dollar of assets they control. It seems that Lowe’s is excelling in converting their investments into profit.

Return on Equity:Return on equity measures how much profit a company generates with the money shareholders’ have invested. Lowe’s return on equity shows that the investor are able to generate a good amount of money internally.

Financial Analysis Profitability Ratio(in millions) 2006 2005

Net Income (/) 2,771 2,176

Net Sales (=) 43,243 36,464

Total 6.4% 5.97%

(in millions) 2006 2005

Net Sales (/) 43,243 36,464

Average Total Assets (=)

(24,602+21,138)/2

21,138

Total 1.89 1.73


Net Income (/) 2,771 2,176

Average Total Assets (=)

(24,603+21,138)/2

21,138

Total 12.1% 10.3%


Net Income (/) 2,771 2,176

Average Stockholders Equity (=)

(14,339+11,535)/2

11,535

Total 21.4% 18.9%

Debt to Equity:Debt to equity measures the company’s reliance on creditor financing as well as the business’s indebtedness compared to the amount invested by it’s owners. Lowe's debt to equity ratio shows that Lowe’s received less than half of its financing from its investors and more than half

from its creditors.

Financial Analysis Solvency Ratio

2006 2005

Total Liabilities (/)

10,343 9,603

Stockholder’s Equity (=)

14,339 11,535

Total 72.13% 83.6%




Price/Earning per Share: Price/ Earning per share is used to measure how cheap or expensive share prices are. Lowe’s investors in 2006 paid $7.96 for every one dollar of earnings and in 2005 paid $11.50 for every one dollar of earnings.

Dividend Yield:Dividend yield shows the investor the yield they can expect by purchasing a stock. Lowe's investors received 0.78% in 2006 and 0.46% in 2005.

Financial Analysis Market Strength Ratio

2006 2005

Market Price per Share (/)

28.35 32.20

Earnings per Share (=)

3.56 2.80

Total 7.96 11.5

2006 2005

Dividends per Share (/)

.22 .15

Market Price per Share (=)

28.35 32.20

Total .78% .46%


emily yetzer acg2021-004. executive summary lowe’s has had a great 2005 year. they have had a 19...

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