Lowe's Financial Analysis Essay Example | Topics and Well Written Essays - 2500 words

Lowe's Financial Analysis - Essay Example A horizontal analysis, according to Accounting Management allows the analysts to look at the factors that cause the changes in the operation. Accounting Coach describes vertical analysis as a method of examining accounts as a percentage of another item and will be shown as a common-size balance sheet. This kind of analysis permits me to compare Lowe’s balance sheet to another company. Thus, analysis of the balance sheet of Lowe Company is stated as a percentage of total asset. (See Annex 6) In the financial statement, vertical analysis of Lowe Company (See Annex 7) will be presented as a percentage of sales, and allows me to compare it with competition and industry average. 3. Calculation of at least five significant liquidity ratios for each of the five years analyzed. The five liquidity ratios used for analysis in Lowe are the current ratio, quick ratio, debt/equity ratio, accounts payable to sales and inventory turnover (See Annex 1 for calculations) 4 .Calculation of at least five significant profitability ratios for each of the five years analyzed. (See Annex 2) Ratios used are gross profit margin, net profit margin, return on sales, return on assets and return on equity. 6 Following guidelines of Accounting Management, long term debt paying ratios used in the study are debt coverage ratios, cash flow to current maturity of long term debt ratio and debt to equity, Ratio of fixed assets to shareholders funds and Proprietary of equity ratio (Accounting for Management) See Annex 4 Based on the Horizontal analysis of Lowe’s financial statement (see Annex 5) revenue in 2011 increased by $1,595million or by 0.03% as compared to sales & revenue in 2010. This change is accompanied by an increase in cost of sales which is equal to the 3% increase in 2011. In other years, from 2007 to 2009, sales are not enough to