A company’s stock profitability is determined through the examination of different factors. The company’s financial position and success rate play a critical role in the determination of the strength of the company in relation to others in the same industry. Stock valuation also differs in industry and the nature of products sold. Even though the retail industry has stocks that are relatively cheaper, it has one of the most economical stocks to venture among the successful players in the retail industry in Lowe’s and Home Deposit, which deal in home Improvement products making them to be great competitors in the retail industry. Despite having big names both in the local and international markets, it is challenging to identify which company to invest in based on the profitability and the company’s strength relative to its competitors and leadership. Therefore, a comparison of the Lowe’s and Home Depot financial statements will be a great indicator of the retailer with the most viable stocks to purchase.
Based on the industrial analysis, the annual growth of sales experienced drastic changes over the years, which is an indication of changing economic conditions experienced in the country. Even through the cost of goods sold remained constant over the five-year period, it does not mean that everything remained the same throughout the years. In addition, the cash and securities in the industry also fluctuated every year, indicating the changes in economic forces. The ratios tied to sales show that the industry was stable even through the fluctuations were experienced every year. An indication that the general industry was stable is indicated in the accounts receivables, inventories and account payable, which shows that the industry was able to survive the various economic challenges that were experienced over the years (Home Depot and Lowes Ratio Analysis). Despite the presence of such information, it only shows the stability of the industry and the viability of the stocks in the industry, but it does not provide information about which player is profitable compared to the rest.
To determine the viability of the stocks between Home Depot and Lowe’s a critical analysis of the different components of their balance sheets is important to the determination of the most profitable stocks to invest in. Among the most important things to consider is the profitability of the two companies. Based on the information provided in the pro-income statement, Home Depot recorded higher net sales in 2023 compared to Lowe’s, even though they both recorded the same percentage increase of 8.70% (Home Depot and Lowes Ratio Analysis). Even though the rate of increase is the same Home Depot will have more money to pay as dividends compared to Lowe’s. In addition, the rate of increase in the sales volume over the years is more in Home Depot compared to Lowe’s. The earnings after tax are also more in Home Depot than in Lowe’s, meaning that they have more money to share out as dividends.
In terms of strength, Home Depot is stronger compared to Lowe’s. The values in the balance sheets show that Home Depot is in a better financial position than Lowe’s (Annual Growth in Sales). Such a condition shows that the former has highly invested in its operations, unlike the latter. The difference is evident in the assets that the two companies hold and their ability to meet short-term goals through liquidating the current assets. This aspect does not mean that Home Depot is better to deposit than Lowe’s unless an analysis of the income statement in undertaken. According to the income statement, Home Depot has negative values in interest and other income expenses, which means that it has paid more in the lends and in the investments that it should. This aspect means that Home Depot has more money to dispose in interests and dividends compared to Lowe’s (Common Size analysis HD & Lowes). In terms of retained earnings, the value continues to increase over the years, making it able to meet its current liabilities and have excess money to retain even after paying stakeholder dividends. Such a company is most likely to expand its operations, making its strength in the market to be higher than Lowe’s. Lowe’s retained earnings in 2022 are a negative valued, meaning that it used part of its retained earnings from the previous accounting period to care for its current liabilities.
Based on the different factors observed in the financial statements of the two companies, Home Depot is likely to have profitable stock compared to Lowe’s due to different reasons. First, Home Depot is stronger in the industry than Lowe’s. The former has recorded more profits over the years compared to the latter. In addition, Home Depot has a stronger finical position than Lowe’s. It also evident that Home Depot retains more money after paying for the dividends and all other expenses than in Lowe’s. The comparison of the two giant retailers shows that the stock from Home Depot is profitable compared to those in Lowe’s since the company has more money to pay as a return to dividends than in Lowe’s. Therefore, one should invest in Home Depot’s stock rather than in Lowe’s.
References
Annual Growth Rate in Sales [Table].
Common Size Analysis HD & Lowes [Table].
Home Depot and Lowes Ratio Analysis [Table].