Final ReportThe purpose of this paper is to provide our final analysis of reviewing cash flows, identify and describe three of the largest variable expenses, explain the five operating expenses of Home Depot and Lowes and to determine which one is better managed from the perspectives of profitability, asset utilization, risk management and cash flow management.
First, I will review the consolidated statements of cash flow for both companies for the three most recent fiscal years and identify how much cash was generated by operating, financing investing activities and other significant events that affected the cash position.
The statement of cash flows for both Home Depot and Lowe's are objective views of the financial activity of the organizations. However, the results of cash flows activity are quite different. Lowe's has had consistent increases in net cash provided by operating activities with a 25% increase from 2004 to 2005 and a 17% increase from 2005 to 2006.
On the other hand, Home Depot showed almost no change from 2004 to 2005 and a 16% increase in net cash from operating activities from 2005 to 2006. Lowe's attributed their positive numbers from keeping a lower investment in inventory. Lowe's primary component of cash flows from investing activities was almost exclusively from investing in new stores, remodeling and remerchandising existing stores and specific investment in their distribution center as well as their information technology infrastructure. Home Depot's net cash used for investing activities had almost no change (2%) from 2004 to 2005 but had a dramatic increase from 2005 to 2006 of 67%. This was primarily due to aggressive business acquisition strategy. Home Depot spent $4.3 billion to acquire 15 business entities along with spending $3.5 billion in new stores, existing store modernization and their technology infrastructure. This trend appears to continue...