Fsa Project

Financial Statement Analysis (FSA) Project
Date: May 2015

By: Stephen Bryan, Ph.D.
Featured Firm: Lowe's, Inc.
Contents
Description of Project..........................................................................................................................................................................1
Recommended Data Sources and Access Procedures......................................................................................................................1
10-K Table of Contents....................................................................................................................................................................2
Data Items...........................................................................................................................................................................................3
1.
Primary Products and Services...............................................................................................................................................3
2.
Primary Customers and Market...............................................................................................................................................4
3.
CEO Letter to Shareholders....................................................................................................................................................6
4.
Descriptions of Firms Strategy, Vision Statement, or Goals..........................................................................................7
5.
Description of Competitive Environment and Identification of Chief Competitor....................................................................7
6.
Decription of Business Outlook from Firms Perspective........................................................................................................8
7.
Description of Major Legal Proceedings..................................................................................................................................8
8.
Auditors Audit Opinion of Financial Statements.....................................................................................................................8
9.
Reasons cited by Management for changes in Sales for Most Recent Fiscal Year...............................................................9
10.
Reasons cited by Management for changes in Gross Margins for Most Recent Fiscal Year...........................................9
11.
Reasons cited by Management for changes in Common Size SG&A for Most Recent Fiscal Year.................................9
12.
Firms Description of its Liquidity Position, both Current and Near Term..........................................................................9
13.
Firms Planned Capital Expenditures for next Fiscal Year (if given)................................................................................10
14.
Firms Dividend Policy (if given).......................................................................................................................................10
15.
Firms Share Repurchase Policy (if given).......................................................................................................................10
16.
Synopsis (excerpts) of an Equity Analysts Research Report..........................................................................................11
17.
Synopsis of a Recent Corporate Announcement.............................................................................................................11
18.
Description of any Impairments for the Most Recent Fiscal Year....................................................................................12
19.
Amount spent on Advertising and on Research and Development for the Past Three Fiscal Years..............................12
20.
Tax Reconciliation Schedule............................................................................................................................................12
21.
Disclosures about Operating Lease Payments................................................................................................................12
22.
Type of Pension Plan and Funded Status (if applicable).................................................................................................13
23.
CEO Name and Brief Biographical Information...............................................................................................................13
24.
Disclosures about Executive Compensation....................................................................................................................14
Ratio Analysis....................................................................................................................................................................................14
Financial Data: Lowes..................................................................................................................................................................15
Ratios: Lowes...............................................................................................................................................................................16
Financial Data: Home Depot.........................................................................................................................................................19
Ratios: Home Depot......................................................................................................................................................................20
Example of Report to Senior Management.......................................................................................................................................23
Note to Students on Layout of Deliverable for the Course...............................................................................................................25
Acknowledgements: The excellent suggestions and review of this sample project by Prof. Bern Beatty and Prof. Steve Lilien are
gratefully acknowledged.
Disclaimer: No investment advice whatsoever is provided in this document. This sample project is for pedagogical purposes only.
Stephen Bryan, Ph.D., 2015
Description of Project
The purpose of this Financial Statement Analysis (FSA) Project is to give students practice with the following:
1.
2.
3.
4.
Locating various financial data items in SEC filings, as well other data sources
Interpreting the financial data items in 1., above
Conducting a thorough ratio diagnostics using a standard set of ratios
Writing a professional report (maximum of two pages in length) to senior management pointing out the results of the analysis,
with particular emphasis on identification of one or more problem areas that require the attention of senior management.
This document provides a completed example of the project. The featured firm is Lowes, Inc., the big box retailer specializing in
home improvement products and services.
The data sources (and respective access procedures) that will provide much of the data needed for this project are in the Data Sources
Table (below). The Data Sources Table does not contain an exhaustive list of relevant data sources, but it contains many of the main
ones. Note: the fifth data source (Investext) is subscription based.
Recommended Data Sources and Access Procedures

1.
Data Sources Table
Instructions for Access
10-K, accessed through sec.gov
Access sec.gov.
Click on More Search Options at the top of the screen.
Type in the company name or the ticker symbol in the
appropriate box. Note: it is more efficient to search by ticker
symbol. If you do not know your firms ticker symbol, go to
finance.google.com and start typing in your firms name in the
top box, Search Finance. Google will return the ticker symbol.
Back to sec.gov, after typing in the firms ticker symbol and
hitting enter, then type 10-K in the box for Filing Type.
Click on Documents. Note: the 10-K is quite large and usually
broken into subdocuments. You need the main one (under type
this is 10-K) and possibly another one, namely EX-13. Note:
EX-13 may already be included in the 10-K, so it is possible that
you will not find it separately, especially for smaller firms. If
EX-13 is listed under type, you will need to save it too (step 6,
below).
Save the document(s) to your hard drive. (Hit control-S, to save.)
1.
2.
The 10-K is the annual filing at the SEC. It contains chapters 3.
(officially referred to as Items) with information on, for example,
the firms background, competition, risk factors, litigation, and
liquidity. It also contains the financial statements and detailed
discussion of the statements in a section called Management
4.
Discussion and Analysis.
5.
6.
2.
Proxy, accessed through sec.gov

The proxy contains information about matters to be voted on in the
annual shareholders meeting, as well as information about the
compensation of the executives of the firm. The access procedures
are the same as above (for the 10-K), except, for Filing Type, type
in Def 14a, which stands for definitive proxy under section 14a of
the applicable securities law.
3.
Current Reports (SEC Form 8-K), accessed through sec.gov

Similar to items #1 and 2, above, this data source can be easily
accessed through sec.gov. 8-K filings contain current information
that investors need to know on a more current basis (rather than
waiting until the end of the current fiscal quarter or year). The SEC
requires firms to file important disclosures on a continual basis. The
access procedures are the same as above, except type in 8-K in the
box for Filing Type.
1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
6.
Access sec.gov.
Type in the ticker symbol.
Type Def 14a in the box for Filing Type.
Click on Documents. Click on the hyperlink for . . .
def14a.htm.
Save to your hard drive.
Access sec.gov.
Type in the ticker symbol.
Type 8-K in the box for Filing Type.
Click on Documents. Click on the hyperlink for . . .
8K.htm. Note: sometimes the 8Ks have multiple exhibits that
you may also need to open and save.
Save the document(s) to your hard drive.
4.
5.
Data Sources Table
Instructions for Access
Annual Report (CEOs Letter to Shareholders), accessed through 1.

Firms Website
2.
Each firms website will have information about the history of the
firm, advertisements for its products and services, e-commerce links, 3.
4.
links to SEC filings, recent press releases, etc. The website will also
have the annual report, which is different from the 10-K, and which
contains the CEOs letter to shareholders (if the CEO has written
one, which is normal, although it is not required). In the letter, the
CEO will usually discuss the firms strategy.
Investext (Thomson ONE), accessed through the universitys 1.
online library.
2.
3.
Investext is a database of equity research reports from major banks,
4.
as well as transcripts of conference calls between analysts and your 5.
firms senior managers. Investext reports can be accessed using 6.
Thomson One. The access procedure in the adjacent column is for 7.
Fordham University. Investext requires a subscription.
8.
9.
10.
11.
Access www.YOUR_FIRM.com (where YOUR_FIRM is the

actual name of your firm that you are studying).
On the homepage, search for links such as: About Us, For
Investors, Investor Relations, etc.
Look for a link to annual reports.
Obtain the Letter to Shareholders, which is usually at the very
beginning of the annual report.
For Fordham University:

access www.fordham.edu; then:
Resources.
Libraries.
Databases.
Choose I in the index and then Investext.
Login with your username and password.
From Thomson ONE navigation page, select Symbol/Name from
menu (in the upper left corner of the page).
Enter your firms ticker symbol.
Click on Go.
Click on the Research tab at the top of the page.
Check the boxes next to the research reports you want, then click
View.
12. Check Select All Reports, then View again.
13. Save the pdf file to disk.
14. Logout of Investext. Please dont forget to do this. There are
limited simultaneous users allowed. Logout by clicking on the
little red arrow in the upper right corner, depicted below:
Since the 10-K is the primary source of data, we provide a brief overview of the layout of the 10-K.
10-K Table of Contents

The 10-K is divided into 15 Items. After you obtain your firms 10-K using the procedure shown in the Data Sources Table above,
scroll down a few pages in the document until you find the index of Items. Below is a generic index of a 10-K.
Item 1.
Item
1A.
Item
1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item
7A.
Item 8.
Item 9.
Item
9A.
Item
9B.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures (newly required under Dodd-Frank)
Executive Officers and Certain Significant Employees of the Registrant
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
2

Item
10.
Item
11.
Item
12.
Item
13.
Item
14.
Item
15.
Directors, Executive Officers and Corporate Governance

Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Signatures
The items from the 10-K that will be the most important sources of information for this project are highlighted above (light blue shading)
and include Items 1, 1A, 3, 7 and 8. (We will obtain information on items 10 and 11, also important, from the proxy, rather than the 10K).
Below are twenty-four data items that will provide potentially useful context and insight for the ensuing ratio analysis, as described more
fully in Chapter 4 of Fundamentals of Financial Accounting and Analysis (FFAA). (For information on this text, please see
theaccountingoasis.com.) Also below are the sources for each data item. As you will note, almost data items come from various parts
of the 10-K.
Data Items
1.
Primary Products and Services
Source: Lowes 10-K, Item 1

Our Products
Product Selection
To meet customers varying home improvement needs, we offer a complete line of products for maintenance, repair, remodeling, and
decorating. We offer home improvement products in the following categories: Kitchens & Appliances; Lumber & Building Materials;
Tools & Hardware; Fashion Fixtures; Rough Plumbing & Electrical; Lawn & Garden; Seasonal Living; Paint; Home Fashions, Storage &
Cleaning; Flooring; Millwork; and Outdoor Power Equipment. A typical Lowe's home improvement store stocks approximately 36,000
items, with hundreds of thousands of additional items available through our Special Order Sales system, Lowes.com, Lowes.ca, and
ATGstores.com. See Note 16 of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K for historical revenues by product category for each of the last three fiscal
years.
We are committed to offering a wide selection of national brand-name merchandise complemented by our selection of private
brands. In addition, we are dedicated to ensuring the products we sell are sourced in a socially responsible, efficient, and cost effective
manner.
National Brand-Name Merchandise
In many product categories, customers look for a familiar and trusted national brand to instill confidence in their purchase. Each Lowes
home improvement store carries a wide selection of national brand-name merchandise such as Whirlpool appliances and water
heaters, GE, LG, and Samsung appliances, Stainmaster carpets, Valspar paints and stains, Pella windows and doors, Sylvania
light bulbs, Dewalt power tools, Owens Corning roofing, Johns Manville insulation, James Hardie fiber cement siding, Husqvarna
outdoor power equipment, Werner ladders, and many more. In 2014, we added brand name merchandise such as Henry coatings,
Hubbell wiring devices, GRK Fasteners, and Progress Lighting to our portfolio. Our merchandise selection provides the retail and
Pro customer a one-stop shop for a wide variety of national brand-name merchandise needed to complete home improvement, repair,
maintenance, or construction projects.
Private Brands
Private brands are an important element of our overall portfolio, helping to provide significant value and coordinated style across core
categories. We sell private brands in several product categories including Tools & Hardware, Seasonal Living, Home Fashions,
Storage & Cleaning, Paint, Fashion Fixtures, Flooring, Millwork, Rough Plumbing & Electrical, and Lumber & Building Materials. Some
of Lowes most important private brands include Kobalt tools, allen+roth home dcor products, Blue Hawk home improvement
products, Project Source basic value products, Portfolio lighting products, Garden Treasures lawn and patio products, Utilitech

electrical and utility products, Reliabilt doors and windows, Aquasource faucets, sinks and toilets, Harbor Breeze ceiling fans, Top
Choice lumber products and Iris home automation and management products.
Supply Chain
We source our products from over 7,000 vendors worldwide with no single vendor accounting for more than 6% of total purchases. We
believe that alternative and competitive suppliers are available for virtually all of our products. Whenever possible, we purchase directly
from manufacturers to provide savings for customers and improve our gross margin.
To efficiently move product from our vendors to our stores and maintain in-stock levels, we own and operate 15 highly-automated
Regional Distribution Centers (RDC) in the United States. Through our RDCs, products are received from vendors, stored and picked,
or cross-docked, and then shipped to our retail locations or directly to customers. On average, each domestic RDC serves
approximately 115 stores. We also lease and operate a distribution facility to serve our Canadian stores. Additionally, we have a
service agreement with a third party logistics provider to manage a distribution facility to serve our stores in Mexico.
In addition to the RDCs, we also operate coastal holding facilities, transload facilities, and flatbed distribution centers. The flatbed
distribution centers distribute merchandise that requires special handling due to size or type of packaging such as lumber, boards,
panel products, pipe, siding, ladders, and building materials. Collectively, our facilities enable our import and e-commerce, as well as
parcel post eligible products, to get to their destination as efficiently as possible. Most parcel post items can be ordered by a customer
and delivered within two business days at standard shipping rates.
On average, in fiscal 2014, approximately 80% of the total dollar amount of stock merchandise we purchased was shipped through our
distribution network, while the remaining portion was shipped directly to our stores from vendors.
Our Services
Installed Sales
We offer installation services through independent contractors in many of our product categories, with Flooring, Millwork and Kitchens &
Appliances accounting for the majority of installed sales. Our Installed Sales model, which separates selling and project administration
tasks, allows our sales associates to focus on project selling, while project managers ensure that the details related to installing the
products are efficiently executed. Installed Sales, which includes both product and labor, accounted for approximately 8% of total sales
in fiscal 2014.
Extended Protection Plans and Repair Services
We offer extended protection plans in Kitchens & Appliances, Tools & Hardware, Outdoor Power Equipment, Seasonal Living, and
Rough Plumbing. Lowes Protection Plans provide customers with product protection that enhances or extends coverage previously
offered by the manufacturers warranty. We provide in-warranty and out-of-warranty repair services for major appliances, outdoor
power equipment, tools, grills, fireplaces, and water heaters through our stores or in the home through our Lowes Authorized Service
Repair Network. We offer replacement plans in products in these categories priced below $200. Our contact center takes customers'
calls, assesses the problems, and facilitates a resolution, making after-sales service easier for our customers because we manage the
entire process.
2. Primary Customers and Market

Source: 10-K, Item 1
Our Customers
We serve homeowners, renters, and professional customers (Pro customers). Retail customers, comprised of individual homeowners
and renters, complete a wide array of projects and vary along the spectrum of do-it-yourself (DIY) and do-it-for-me (DIFM). The Pro
customer consists of two broad categories: construction trades; and maintenance, repair & operations.
Our Market
We are among the many businesses, including home centers, paint stores, hardware stores, lumber yards and garden centers, whose
revenues are included in the Building Material and Garden Equipment and Supplies Dealers Subsector (444) of the Retail Trade Sector
of the North American Industry Classification System (NAICS), the standard used by Federal statistical agencies in classifying business
establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. The total
annual revenue reported for businesses included in NAICS 444 in 2014 was $328 billion, which represented an increase of 5.1% over
the amount reported for the same category in 2013. The total annual revenue reported for businesses included in NAICS 444 in 2013
was $312 billion, which represented an increase of 6.0% over the amount reported for the same category in 2012.

NAICS 444 represents less than half of what we consider the total market for our products and services. The broader market in which
Lowes operates includes home-related sales through a variety of companies beyond those in NAICS 444. These consist of other
companies in the retail sector, including mass retailers, home furnishings stores, and online retailers, as well as wholesalers that
provide home-related products and services to homeowners, businesses, and the government. Based on our analysis of the most
recent comprehensive data available, we estimate the size of the U.S. home improvement market at $690 billion in 2014, comprised of
$520 billion of product sales and $170 billion of installed labor sales. That compares with $640 billion total market sales in 2013,
comprised of $480 billion of product sales and $160 billion of installed labor sales.
There are many variables that affect consumer demand for the home improvement products and services Lowes offers. Key indicators
we monitor include real disposable personal income, employment, home prices, and housing turnover. We also monitor demographic
and societal trends that shape home improvement industry growth.
Real disposable personal income is projected to grow at a stronger pace in 2015 than in 2014. Real disposable personal income
is forecasted to increase 3.5% in calendar 2015, up from the 2.5% gain recorded in 2014, based on the March 2015 Blue Chip
Economic Indicators.
The average unemployment rate for 2015 is forecasted to decline to 5.4%, according to the March 2015 Blue Chip Economic
Indicators, which would be an improvement from the 6.2% average in 2014. The unemployment rate should continue to trend
lower as the job market continues to expand at a moderate pace.
Recent evidence suggests that home prices will continue to increase. In 2014, home price appreciation improved to an
estimated 5.7%, according to the Federal Housing Finance Agency index. Economists generally expect the rate of home price
growth to moderate in 2015 but to remain positive.
Housing turnover decreased 2.8% in 2014 after a 9.0% increase in 2013, according to The National Association of Realtors and
U.S. Census Bureau. Growth in 2014 was restrained by an increase in mortgage rates and harsh winter weather. Turnover is
generally expected to increase in 2015, supported by a strengthening jobs market, rising incomes and historically low mortgage
rates.
These indicators are important to our business because they signal a customer's willingness to engage in home maintenance, repair,
and upgrade projects and favorably impact income available to purchase our products and services. Currently, these indicators
suggest moderately improving consumer demand for the home improvement products and services we sell.
Selling Channels
We are continuing our progress towards becoming an omni-channel retail company, which allows our customers to move from channel
to channel with simple and seamless transitions even within the same transaction. For example, for many projects, more than half of
our customers conduct research online before making an in-store purchase. For purchases made on Lowes.com, approximately 60%
are picked up in-store, 10% are delivered from a store, and 30% are parcel shipped. Regardless of the channels through which
customers choose to engage with us, we strive to provide them with a seamless experience across channels and an endless aisle of
products, enabled by our flexible fulfillment capabilities. Our ability to sell products in-store, online, on-site, or through our contact
centers speaks to our ability to leverage our existing infrastructure with the omni-channel capabilities we are introducing.
In-Store
Our 1,766 home improvement stores are generally open seven days per week and average approximately 112,000 square feet of retail
selling space, plus approximately 32,000 square feet of outdoor garden center selling space. In addition, we operate 74 Orchard stores
located throughout California and Oregon that also serve home improvement customers. Our home improvement stores offer similar
products and services, with certain variations based on local market factors; however, Orchard stores are primarily focused on paint,
repair, and backyard products. We continue to develop and implement tools to make our sales associates more efficient and to
integrate our order management and fulfillment processes. Our home improvement stores have Wi-Fi capabilities that provide
customers with internet access, making information available quickly to further simplify the shopping experience.
Online
Through Lowes.com, Lowes.ca, ATGstores.com and mobile applications, we seek to empower consumers by providing a 24/7 shopping
experience, online product information, customer ratings and reviews, online buying guides and how-to videos and other information.
These tools help consumers make more informed purchasing decisions and give them increased confidence to undertake home
improvement projects. In 2014, sales through our online selling channels, which include Lowes.com, Lowes.ca and ATGstores.com,
5

accounted for approximately 2.5% of our total sales. We enable customers to choose from a variety of fulfillment options, including
buying online and picking up in-store as well as delivery or parcel shipment to their homes.
On-Site
We have on-site specialists available to retail and Pro customers to assist them in selecting products and services for their
projects. Our Account Executives ProServices meet with Pro customers at their place of business or on a job site and leverage stores
within the area to ensure we meet customer needs for products and resources. Our Project Specialist Exteriors (PSE) program is
available in all Lowes stores to discuss exterior projects such as roofing, siding, fencing, and windows, whose characteristics lend
themselves to an in-home consultative sales approach. In addition, our Project Specialist Interiors (PSI) program is available in seven
of our 14 regions to provide similar consultative services on interior projects such as kitchens and bathrooms.
Contact Centers
Lowes operates two contact centers which are located in Wilkesboro, NC and Albuquerque, NM. In addition, we are opening an
additional facility in Indianapolis, IN. These contact centers help enable an omni-channel experience by providing the ability to tender
sales, coordinate deliveries, manage after-sale installations, facilitate repair services for Appliances and Outdoor Power Equipment,
and answer general customer questions via phone, e-mail, letters, or social media.
3. CEO Letter to Shareholders

Source: Annual Report (Note: this is not the same as the 10-K). You can access the firms annual report at the firms website, generally
under Investor Relations, About Us, For Investors, or similar title. See the Data Sources Table above for more information.
Robert A. Niblock
Chairman of the Board, President and Chief Executive Officer
At Lowes, we know that home improvement fulfills an emotional need for customers and their families. Our focus is much deeper than
just selling products; customers can get products anywhere. We help people love where they live. In fact, weve been doing that since
this company was founded in 1946.
We provide not only the products, but also the services, information and advice to help people improve their homes. And to meet
customers evolving expectations, we are transforming from a single-channel home improvement retailer to an omni-channel home
improvement company. We are building on our past success and finding new ways to serve and connect with customers, including
innovative approaches to store formats and product presentation, new services and tools, and entry into new markets.
In 2014, we delivered another year of solid performance with 4.3 percent comps as our transformation gained momentum and the
housing market and broader economy continued to recover.
Sales growth, combined with our focus on improving productivity and profitability, led to an 18.0 percent increase in net earnings, a 26.6
percent increase in earnings per share and a 243 basis points increase in Return on Invested Capital to 13.9 percent.
While we are pleased with the progress we made this year, we seek to improve further. In fact, we continue to invest in our core U.S.
retail business and in adjacent home improvement businesses that position Lowes favorably within a changing home improvement
landscape.
We have anchored our U.S. strategy in two key areas that will deliver value to customers, employees and shareholders.
First, we are enhancing our relevance to customers through omni-channel retailing. Customers want to move from channel to channel,
and they want the transition between channels to be simple and seamless. They do not know that the website they visited was built in
Mooresville, NC, that the person addressing their questions on the phone is sitting in our contact center in Albuquerque, NM, or that the
item they just purchased will be shipped from one of our distribution centers to the Lowes store near their home. To the customer, it is
all Lowes, and we have to be with them every step of the wayno matter how many steps they take. We have made great progress
over the past few years to meet customers on their terms, whenever and wherever they choose to engage. We expect to begin rolling
out additional omni-channel capabilities in 2015.
Second, we are differentiating ourselves through better customer experiences that make us the project authority. We have a dedicated
team that uses consumer insights to create experiences that inspire customers and differentiate Lowes in the marketplace. Investing in
these experiences offers insulation from product-focused competitors, creates service opportunities, and delights customers, which in
turn drives loyalty. A good example is our Outdoor Living Experience, which we rolled out to the majority of our stores in advance of the
2014 spring selling season. This new experience better positioned Lowes as the destination for outdoor living with coordinated style. It
performed very well in 2014, delivering double-digit comps for the category. WE HAVE TO BE WITH CUSTOMERS EVERY STEP
We can also apply our design resources to a specific product, such as the redesign of our Shop-Vac display, which is also performing
well. We have additional broad-based and product-specific experiences planned for 2015. Internationally, we are tailoring our approach
so we can successfully build scale in markets where we currently operate.
We also continue to evaluate other markets where there may be significant potential to broaden our geographic scope. However, we
know we must take a prudent approach when entering new markets, carefully studying the regulatory risks, cultures, and historical and
6

forecasted home improvement market growth. In all cases, we take a long term view to obtaining compelling returns. We are at a great
point in our companys evolution. Our business is sound and our brand is strong. We are one of the largest players in the home
improvement market, which provides tremendous buying power and economies of scale. In addition, the housing market and broader
economic recovery is strengthening just as our transformation is gaining momentum.
As a result, we continue to generate solid cash flow and have exciting opportunities for long-term profitable growth. Our capital
allocation priorities are straightforward and have not changed over the last several years. We invest to maintain and grow our
businesses. Next, we target a dividend payout ratio of 35 percent, and our dividend has grown every year since going public in 1961.
Then, we use remaining funds to repurchase shares. We have been hard at work for the past few years, and I am even more confident
today that we are on the right path.
I am proud of the Lowes leadership team, which is committed to advancing our strategy, and our more than 265,000 employees who
work every day to help people love where they live.
Robert A. Niblock Chairman of the Board, President and Chief Executive Officer
4.
Descriptions of Firms Strategy, Vision Statement, or Goals
Sources: 10-K, Items 1, 7; CEO letter from the annual report. (Hint: It is helpful to do a word search for the terms such as
strategy, vision, goals, achieve, and other such words.)
Below is from the CEO letter (repeated from above):
And to meet customers evolving expectations, we are transforming from a single-channel home improvement retailer to an omnichannel home improvement company.
We have anchored our U.S. strategy in two key areas that will deliver value to customers, employees and shareholders. First, we are
enhancing our relevance to customers through omni-channel retailing.
Second, we are differentiating ourselves through better customer experiences that make us the project authority.
We also continue to evaluate other markets where there may be significant potential to broaden our geographic scope. However, we
know we must take a prudent approach when entering new markets, carefully studying the regulatory risks, cultures, and historical and
forecasted home improvement market growth. In all cases, we take a long term view to obtaining compelling returns.
We invest to maintain and grow our businesses. Next, we target a dividend payout ratio of 35 percent, and our dividend has grown
every year since going public in 1961. Then, we use remaining funds to repurchase shares.
Below is from the 10-K (Item 7):
Throughout 2014, we continued to build momentum as we further optimized our business model. We were focused on three priorities to
drive further top line growth including our enhanced Sales & Operations Planning process, building on our customer experience design
capabilities, and improving our relevance with the Pro customer. In addition, in order to provide not just the products, but also the
services, information, and advice to help our customers improve their homes, we are continuing to transform from a single-channel,
home improvement retailer to an omni-channel home improvement company. This allows us to sell products from a store, online, onsite, or through one of our contact centers and fulfill orders in the most convenient manner for our customers.
As we move into 2015, we will focus on capitalizing on market opportunities and driving profitability within an improving economy. We
will continue to differentiate ourselves through better customer experiences and improving our product and service offering for the Pro
customer. We have made progress over the past few years to meet customers on their terms whenever and wherever they choose to
engage, and we will continue to invest in omni-channel capabilities to ensure that we are convenient and easy to do business with. We
also remain committed to improving our productivity and profitability in areas including store payroll, marketing and efforts to leverage
our scale to achieve cost savings on indirect spend.
5. Description of Competitive Environment and Identification of Chief Competitor

Source for Competitor: finance.google.com, Note: after entering the firms ticker, simply review Related Companies on the main page
for a list of firms that would constittute competitors.
Competitor: Home Depot (from Google)
Source for Description of Competitive Environment: 10-K, Item 1
Our Competition
The home improvement retailing business includes a broad competitive landscape. We compete with other home improvement
warehouse chains and lumberyards in most of our trade areas. We also compete with traditional hardware, plumbing, electrical and
7

home supply retailers. In addition, we compete with general merchandise retailers, warehouse clubs, and online and other specialty
retailers. Location of stores continues to be a key competitive factor in our industry; however, the increasing use of technology and the
simplicity of online shopping also underscore the importance of omni-channel capabilities as a competitive factor. We differentiate
ourselves from our competitors by providing better customer experiences that make us the project authority while delivering value to
our customers. See further discussion of competition in Item 1A, Risk Factors, of this Annual Report on Form 10-K.
6. Decription of Business Outlook from Firms Perspective

Source: 10-K, Item 7. Not too many firms are particularly specific about their business outlook. Lowes happens to be one that is, as
shown below. If your firm does not have a dedicated discussion about its outlook in the 10-K, or perhaps in the CEOs letter (above,
which you can duplicate here, as applicable), then you should obtain a transcript of a recent conference call from Investext. These
transcripts are provided by Thomson and are titled Thomson Street Events. In these conference calls, the back-and-forth in the
question-and-answer can reveal a great deal of prospective information.
LOWES BUSINESS OUTLOOK
As of February 25, 2015, the date of our fourth quarter 2014 earnings release, we expected total sales in 2015 to increase 4.5% to 5%
and comparable sales to increase 4% to 4.5%. We expected to open 15 to 20 home improvement and hardware stores during 2015. In
addition, earnings before interest and taxes as a percentage of sales (operating margin) were expected to increase 80 to 100 basis
points, and the effective tax rate was expected to be approximately 38.1%. Diluted earnings per share of approximately $3.29 were
expected for the fiscal year ending January 29, 2016. Our guidance assumed approximately $3.8 billion in share repurchases during
2015.
7. Description of Major Legal Proceedings

Source: 10-K, Item 3; notes to the financial statements
Item 3 - Legal Proceedings
We are a defendant in legal proceedings considered to be in the normal course of business, none of which, individually or collectively, is
considered material.
8. Auditors Audit Opinion of Financial Statements

Source: 10-K, audit opinion letter
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Lowe's Companies, Inc.
Mooresville, North Carolina
We have audited the accompanying consolidated balance sheets of Lowe's Companies, Inc. and subsidiaries (the "Company") as of
January 30, 2015 and January 31, 2014, and the related consolidated statements of earnings, comprehensive income, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended January 30, 2015. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at
January 30, 2015 and January 31, 2014, and the results of its operations and its cash flows for each of the three fiscal years in the
period ended January 30, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of January 30, 2015, based on the criteria established in Internal Control
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 31, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 31, 2015
9. Reasons cited by Management for changes in Sales for Most Recent Fiscal Year
Net sales Net sales increased 5.3% to $56.2 billion in 2014. The increase in total sales was driven primarily by the comparable sales
increase of 4.3%, the acquisition of Orchard, and new stores. The comparable sales increase of 4.3% in 2014 was driven by a 2.4%
increase in comparable average ticket and a 1.8% increase in comparable customer transactions. Comparable sales increased during
each quarter of the fiscal year as we reported 0.9% in the first quarter, 4.4% in the second quarter, 5.1% in the third quarter, and 7.3%
in the fourth quarter.
All of our product categories experienced comparable sales increases for the year. During 2014, we experienced comparable sales
above the company average in the following product categories: Millwork, Kitchens & Appliances, Tools & Hardware, and Fashion
Fixtures. Targeted promotions coupled with the expansion of our Project Specialist programs drove comparable sales increases,
especially within Millwork, Kitchens & Appliances, and Fashion Fixtures, as we continued to benefit from customers' increasing interest
in refreshing both the interior and exterior of their homes. Within Tools & Hardware, our enhanced Sales & Operations Planning process
helped us drive strong performance in power and pneumatic tools. In addition, Flooring and Outdoor Power Equipment performed at
approximately the overall company average. Geographically, 13 of the 14 U.S. regions experienced increases in comparable store
sales, as sales performance was well balanced across the country.
10. Reasons cited by Management for changes in Gross Margins for Most Recent Fiscal Year
Gross margin Gross margin of 34.79% for 2014 represented a 20 basis point increase from 2013 and was primarily driven by cost
reductions associated with our Value Improvement initiative, which consisted of improved line review and product reset processes to
better position us to meet customers' product needs and drive better inventory productivity.
During the fourth quarter of 2014, gross margin decreased one basis point as a percentage of sales. Gross margin was negatively
impacted by mix of products sold and price actions on specific categories, partially offset by our Value Improvement program and better
seasonal sell-through.
11. Reasons cited by Management for changes in Common Size SG&A for Most Recent Fiscal Year
SG&A SG&A expense for 2014 leveraged 46 basis points as a percentage of sales compared to 2013. This was primarily driven by
21 basis points of leverage associated with operating salaries as we optimized payroll hours against customer traffic. We also
experienced 16 basis points of leverage associated with incentive compensation due to lower attainment levels compared to the prior
year and seven basis points of leverage in property taxes due to favorability in property valuations recognized in the current year. In
addition, we experienced six basis points of leverage in advertising expense due to increased sales and five basis points of leverage in
utilities due to decreased consumption due to favorable weather experienced in the current year. These were partially offset by 23 basis
points of deleverage in employee insurance costs, due to increased claims as well as additional costs associated with the Affordable
Care Act.
SG&A expense during the fourth quarter leveraged 88 basis points due primarily to long-lived asset impairments recorded in the prior
year, as well as leverage in operating salaries, and property taxes.
12. Firms Description of its Liquidity Position, both Current and Near Term
Sources of Liquidity
9
In addition to our cash flows from operations, liquidity is provided by our short-term borrowing facilities. On August 29, 2014, we entered
into a new five year unsecured revolving credit agreement (the 2014 Credit Facility) to replace the 2011 Second Amended and Restated
Credit Agreement dated October 2011. The 2014 Credit Facility provides for borrowings up to $1.75 billion and expires in August 2019.
Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2014 Credit Facility, we may
increase the aggregate availability under the facility by an additional $500 million. The 2014 Credit Facility supports our commercial
paper program and has a $500 million letter of credit sublimit. Letters of credit issued pursuant to the 2014 Credit Facility reduce the
amount available for borrowing under its terms.
Borrowings made are unsecured and are priced at fixed rates based upon market conditions at the time of funding in accordance with
the terms of the 2014 Credit Facility. Thirteen banking institutions are participating in the 2014 Credit Facility. The 2014 Credit Facility
contains certain restrictive covenants, which include maintenance of an adjusted debt leverage ratio as defined by the credit
agreement. We were in compliance with those covenants at January 30, 2015. In addition, there were no outstanding borrowings or
letters of credit under the 2014 Credit Facility and no outstanding borrowings under the commercial paper program at January 30,
2015. For additional information about the 2014 Credit Facility, see the summary of certain terms thereof that is included in the Current
Report on Form 8-K we filed on September 2, 2014 with the Securities and Exchange Commission.
We expect to continue to have access to the capital markets on both short-term and long-term bases when needed for liquidity
purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be
adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects
our debt ratings by Standard & Poors (S&P) and Moodys as of March 31, 2015, which we are disclosing to enhance understanding of
our sources of liquidity and the effect of our ratings on our cost of funds. Although we currently do not expect a downgrade in our debt
ratings, our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating
organization, and each rating should be evaluated independently of any other rating.
Debt Ratings
S&P
Moodys
Commercial Paper
Senior Debt
Outlook
A-2
AStable
P-2
A3
Stable
We believe that net cash provided by operating and financing activities will be adequate not only for our operating requirements, but
also for investments in information technology, investments in our existing stores, expansion plans and acquisitions, if any, and to return
cash to shareholders through both dividends and share repurchases over the next 12 months. There are no provisions in any
agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a
decrease in our stock price. In addition, we do not have a significant amount of cash held in foreign affiliates that is unavailable to fund
domestic operations.
13. Firms Planned Capital Expenditures for next Fiscal Year (if given)
Source: 10-K, Item 7: Note: some firms do not give budgeted (planned) capex. However, it is a required disclosure if the budgeted
amount is known and material. Therefore, most firms do provide the information. If you are sure that it is not available, just provide a
note that states this.
Capital expenditures
Our fiscal 2015 capital forecast is approximately $1.4 billion, inclusive of approximately $200 million of lease commitments, resulting in
a planned net cash outflow of $1.2 billion. Investments in our existing stores are expected to account for approximately 40% of net
cash outflow, including investments in store equipment, resets, and remerchandising. Approximately 30% of the planned net cash
outflow is for corporate programs, including investments to enhance the customer experience, as well as enhancements to the
corporate infrastructure. In addition, approximately 30% of the planned net cash outflow is for store expansion. Our expansion plans for
2015 consist of 15 to 20 new home improvement and hardware stores, approximately half of which will be leased.
14. Firms Dividend Policy (if given)

Source: 10-K, Item 7. Note: if the dividend policy is not specifically stated, try to find the firms description of dividend payments (as is
the case below).
Dividends declared during fiscal 2014 totaled $858 million. Our dividend payment dates are established such that dividends are paid in
the quarter immediately following the quarter in which they are declared. The dividend declared in the fourth quarter of 2014 was paid
in fiscal 2015 and totaled $222 million.
10
Source: CEO letter to shareholders, from the Annual Report, repeated from above. Note: if the dividend policy is not specifically
stated, try to find the firms description of dividend payments.
[W]e target a dividend payout ratio of 35 percent, and our dividend has grown every year since going public in 1961.
15. Firms Share Repurchase Policy (if given)

Source: 10-K, Item 7. Note: if the share repurchase policy is not specifically stated, try to find the firms description of share
repurchases.
We have an ongoing share repurchase program that is executed through purchases made from time to time either in the open market
or through private off-market transactions. Shares purchased under the repurchase program are retired and returned to authorized and
unissued status. On January 31, 2014, the Company's Board of Directors authorized a $5.0 billion share repurchase program with no
expiration. As of January 30, 2015, the Company had $2.4 billion remaining available under this authorization with no expiration date.
On March 20, 2015, the Company's Board of Directors authorized an additional $5.0 billion share repurchase program with no
expiration. In fiscal 2015, the Company expects to repurchase shares totaling $3.8 billion through purchases made from time to time
either in the open market or through private off market transactions in accordance with SEC regulations.
Source: CEO letter to shareholders, from the Annual Report, repeated from above.
Our capital allocation priorities are straightforward and have not changed over the last several years. We invest to maintain and grow
our businesses. Next, we target a dividend payout ratio of 35 percent, and our dividend has grown every year since going public in
1961. Then, we use remaining funds to repurchase shares.
16. Synopsis (excerpts) of an Equity Analysts Research Report

Source: Investext
Bank: Cantor Fitzgerald
Analysts: Laura Champine, Jason Smith
Date of report: 4/20/15
Below are excerpts from the report:
We are initiating coverage on Lowe's with a HOLD rating and price target of $75, based on our discounted free cash flow model. The
company appears to be accelerating top- and bottom-line momentum behind its merchandising upgrades and labor optimization efforts
amid what we view as still a healthy home improvement environment. We think this will enable Lowe's to continue closing the SSS gap
versus Home Depot (HD) after having consistently lagged since the start of the housing market's upturn half a decade ago. The stock
has had a stellar run, up 126% over the trailing three-year period, versus the S&P 500 index +52% and the RLX index +81%. We
believe the shares already reflect Lowe's momentum at their current valuation.
One of the most significant longer-term risks to Lowe's, in our view, is that its core DIY customer is aging and downsizing. If job growth
leads to improved household formation growth, that could be a healthy offset to this trend. U.S. Census Bureau data indicates home
ownership for those under 35 years old is at a 20-year low, suggesting to us there is a high-level of pent-up demand.
We believe Lowes will continue to benefit from the improvements in merchandising, stores, and service it has made over the last few
years. We think HD still holds an edge. Its relative SSS outperformance should continue in FY:15, but the spread between the two
companies is getting much narrower. The pro customer is one area where both companies are competing fiercely, and although Lowes
has made significant strides adding brands, it still has some catching up to do in service, in our view. We believe there is still room for
HD and Lowes to both pick up substantial share in the pro category, as the two only own a combined 20% share of the market.
17. Synopsis of a Recent Corporate Announcement

Source: Company webcite, press release (http://phx.corporate-ir.net/phoenix.zhtml?c=95223&p=irol-newsArticle&ID=2027491)
(Alternatively, you can obtain recent corporate announcements via the 8K from sec.gov.)
Lowe's Companies, Inc. Announces New $5 Billion Share Repurchase Program And Declares Cash Dividend
MOORESVILLE, N.C., March 20, 2015 /PRNewswire/ -- Reflecting its commitment to return excess cash to shareholders, the Board of
Directors for Lowe's Companies, Inc. (NYSE: LOW) has authorized a new repurchase program of $5 billion of the company's common
stock. This new repurchase program has no expiration date and adds to the previous program's balance, which was $2.4 billion as of
January 30, 2015. Repurchases will be subject to market conditions and will be made from time to time either in the open market or
through private off-market transactions in accordance with the requirements of the Securities and Exchange Commission. The
company's repurchase program may be suspended, discontinued or resumed at any time.
11

In addition, the Board of Directors has declared a quarterly cash dividend of twenty three cents ($0.23) per share, payable May 6, 2015,
to shareholders of record as of April 22, 2015.
Lowe's Companies, Inc. (NYSE: LOW) is a FORTUNE 100 home improvement company serving approximately 16 million customers a
week in the United States, Canada and Mexico through its stores and online at lowes.com, lowes.ca and lowes.com.mx. With fiscal
year 2014 sales of $56.2 billion, Lowe's has 1,840 home improvement and hardware stores and more than 265,000 employees.
Founded in 1946 and based in Mooresville, N.C., Lowe's supports the communities it serves through programs that focus on K-12
public education and community improvement projects. For more information, visit Lowes.com.
12
18. Description of any Impairments for the Most Recent Fiscal Year
Source: 10-K, notes to financial statements
The Company recorded long-lived asset impairment losses of $28 million during 2014, including $26 million for operating locations and
$2 million for excess properties classified as held-for-use
Impairment losses are included in SG&A expense in the consolidated statements of earnings. Fair value measurements associated
with long-lived asset impairments are further described in Note 2 to the consolidated financial statements.
The carrying amounts of long-lived assets are reviewed whenever certain events or changes in circumstances indicate that the carrying
amounts may not be recoverable. A potential impairment has occurred for long-lived assets held-for-use if projected future
undiscounted cash flows expected to result from the use and eventual disposition of the assets are less than the carrying amounts of
the assets. An impairment loss is recorded for long-lived assets held-for-use when the carrying amount of the asset is not recoverable
and exceeds its fair value.
Excess properties that are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria are classified
as long-lived assets held-for-sale. Excess properties consist primarily of retail outparcels and property associated with relocated or
closed locations. An impairment loss is recorded for long-lived assets held-for-sale when the carrying amount of the asset exceeds its
fair value less cost to sell. A long-lived asset is not depreciated while it is classified as held-for-sale.
19. Amount spent on Advertising and on Research and Development for the Past Three Fiscal Years
Advertising - Costs associated with advertising are charged to expense as incurred. Advertising expenses were $819 million, $811
million and $809 million in 2014, 2013 and 2012, respectively.
Research and Development: N/M
20. Tax Reconciliation Schedule

Source: 10-K, notes to financial statements. (Hint: use the search phrase effective tax rate. The Tax Reconciliation Schedule gives
the reasons for the difference between the statutory rate, which is 35% in the U.S., and the effective tax rate.)
The following is a reconciliation of the federal statutory tax rate to the effective tax rate:
21. Disclosures about Operating Lease Payments

The future minimum rental payments required under operating leases and capitalized lease obligations having initial or
remaining non-cancelable lease terms in excess of one year are summarized as follows:
13
22. Type of Pension Plan and Funded Status (if applicable)

Source: 10-K, notes to financial statements. Note: funded status will be given only for Defined Benefit plans, which are those that
promise benefit payments in retirement. The other type of plan is a Defined Contribution plan, which is one that promises to fund a
pension plan for the employees, but does promise payments in retirement. If the plan is Defined Benefit, you can find the funded status
in the notes. (The funded status will be provided in a table that compares the pension plan assets against the pension obligations.)
Severely underfunded plans may affect your analysis.
NOTE 10: Employee Retirement Plans
The Company maintains a defined contribution retirement plan for its eligible employees (the 401(k) Plan). Employees are eligible to
participate in the 401(k) Plan six months after their original date of service. Eligible employees hired or rehired prior to November 1,
2012, were automatically enrolled in the 401(k) Plan at a contribution rate of 1% of their pre-tax annual compensation unless they
elected otherwise. Eligible employees hired or rehired November 1, 2012, or later must make an active election to participate in the
401(k) Plan. The Company makes contributions to the 401(k) Plan each payroll period, based upon a matching formula applied to
employee deferrals (the Company Match). Participants are eligible to receive the Company Match pursuant to the terms of the 401(k)
Plan. The Company Match varies based on how much the employee elects to defer up to a maximum of 4.25% of eligible
compensation. The Company Match is invested identically to employee contributions and is immediately vested.
The Company maintains a Benefit Restoration Plan to supplement benefits provided under the 401(k) Plan to participants whose
benefits are restricted as a result of certain provisions of the Internal Revenue Code of 1986. This plan provides for employee salary
deferrals and employer contributions in the form of a Company Match.
The Company maintains a non-qualified deferred compensation program called the Lowes Cash Deferral Plan. This plan is designed
to permit certain employees to defer receipt of portions of their compensation, thereby delaying taxation on the deferral amount and on
subsequent earnings until the balance is distributed. This plan does not provide for Company contributions.
The Company recognized expense associated with employee retirement plans of $154 million, $160 million and $151 million in 2014,
2013 and 2012, respectively.
23. CEO Name and Brief Biographical Information

Source: Proxy
ROBERT A. NIBLOCK
Director Since: 2004
Age: 52
Mr. Niblock has served as Chairman of the Board and Chief Executive Officer of Lowes since January 2005. In May 2011, he
reassumed the title of President, after having served in that role from 2003 to 2006. Mr. Niblock joined Lowes in 1993, and during his
career with the Company, has served as Vice President and Treasurer, Senior Vice President Finance, and Executive Vice President
and Chief Financial Officer. Before joining Lowes, Mr. Niblock had a nine-year career with the accounting firm Ernst & Young LLP. He
currently serves on the board of directors of ConocoPhillips. Mr. Niblock is also Secretary and has been a member, since 2003, and
previously served as Chairman of the board of directors, of the Retail Industry Leaders Association (RILA).
14

Experience, Qualifications, Attributes and Skills. During his 21-year career with the Company, Mr. Niblock has held a number of
different positions with the Company, gaining a deep understanding of Lowes operations and its organizational culture and values. With
a background in accounting, Mr. Niblock also brings accounting and related financial management experience to Lowes Board.
24. Disclosures about Executive Compensation

Source: Proxy
Ratio Analysis
To facilitate this part of the project, obtain the spreadsheet, FSATemplate_v2015_StandardizedData_LOW_HD.xlsx, from your
professor. The spreadsheet contains the financial data (and ratios) for this sample project using Lowes and Home Depot.
You should cut and paste the data for your firm that you are studying (and its competitor) on top of the Lowes and Home Depot data
that are in the spreadsheet. For standardized data sets, please see your professor.
Once the data are entered (cut and pasted), the ratios for your firm (and its competitor) will be calculated automatically.
The ratios correspond by number to the ratios discussed in Chapter Four of the text, Fundamentals of Financial Accounting & Analysis.
(See theaccountingoasis.com for information about the text.)
Below are the financial data for Lowes and Home Depot, using FSATemplate_v2015_StandardizedData_LOW_HD.xlsx. Below the
financial data, we show the ratios.
15
Cash Flow Data
Balance Sheet
Income Statement
Header Information
Financial Data: Lowes
Othe
r
Ticker
Company Name
NAICS (6 digit)
NAICS (5 digit)
NAICS (4 digit)
Date (year)
Sales (Revenues)
Cost of Sales (or Cost of Goods Sold, COGS)
SG&A Expense
Operating Income (EBIT)
Interest Expense
Pre Tax Income
Tax Expense
Net Income
Diluted Earnings per Share
Dividends per Share
Cash and Cash Equivalents and Short Term Investments
Accounts Receivable, net
Inventory
Total Current Assets
PP&E, net
Intangible Assets, total
Total Assets
Accounts Payable
Total Current Liabilities
Interest Bearing Debt
Owners' Equity
Number of Shares Issued and Outstanding
Operating Cash Flow
Capital Expenditures
Total Investing Cash Flow
Net Change in Interest Bearing Debt
Dividends paid
Share repurchases
Total Financing Cash Flow
Year End Stock Prices (FYE)
LOW
LOWE'S
COMPANIES
INC
444110
44411
4441
2014
56,223.00
36,665.00
13,281.00
4,792.00
516
4,276.00
1,578.00
2,698.00
$2.71
$0.87
591
0
8,911.00
10,080.00
20,034.00
.
31,827.00
5,124.00
9,348.00
11,367.00
9,968.00
960
4,929.00
-880
-1,088.00
805
-822
-3,905.00
-3,761.00
$67.76
LOW
LOWE'S
COMPANIES
INC
444110
44411
4441
2013
53,417.00
34,941.00
12,865.00
4,149.00
484
3,673.00
1,387.00
2,286.00
$2.14
$0.70
576
0
9,127.00
10,296.00
20,834.00
.
32,732.00
5,008.00
8,876.00
10,521.00
11,853.00
1,030.00
4,111.00
-940
-1,286.00
1,324.00
-733
-3,710.00
-2,969.00
$46.29
LOW
LOWE'S
COMPANIES
INC
444110
44411
4441
2012
50,521.00
33,194.00
12,244.00
3,560.00
436
3,137.00
1,178.00
1,959.00
$1.69
$0.62
666
0
8,600.00
9,784.00
21,477.00
0
32,666.00
4,657.00
7,708.00
9,077.00
13,857.00
1,110.00
3,762.00
-1,211.00
-903
1,393.00
-704
-4,393.00
-3,333.00
$38.19
LOW
LOWE'S
COMPANIES
INC
444110
44411
4441
2011
50,208.00
32,858.00
12,593.00
3,277.00
393
2,906.00
1,067.00
1,839.00
$1.43
$0.53
1,300.00
0
8,355.00
10,072.00
21,970.00
0
33,559.00
4,352.00
7,891.00
7,627.00
16,533.00
1,241.00
4,349.00
-1,829.00
-1,437.00
956
-647
-2,937.00
-2,549.00
$26.83
LOW
LOWE'S
COMPANIES
INC
444110
44411
4441
2010
48,815.00
31,663.00
12,006.00
3,560.00
358
3,228.00
1,218.00
2,010.00
$1.42
$0.42
1,123.00
0
8,321.00
9,967.00
22,089.00
0
33,699.00
4,351.00
7,119.00
6,573.00
18,112.00
1,354.00
3,852.00
-1,329.00
-2,184.00
1,433.00
-571
-2,618.00
-1,651.00
$24.80
NAICS stands for North American Industry Classification System. It is a code to identify or define an industry. It is often given in 6
digit, 5, digit, and 4 digit formats, with the greater number of digits corresponding to greater granularity. The code is useful for
identifying the group of firms in a particular industry and thus the degree of competition in that industry. More information about NAICS
codes is here: http://www.census.gov/eos/www/naics.
16
Valuation
Financial
Strength
Mgt.
Effective-ness
Efficiency
Profitability
Ratios: Lowes
Beta
Ratios
1. Gross Margin Ratio = (Sales COGS) / Sales, or = 1 COGS / Sales
2. Cost Ratio = COGS / Sales, or = 1 - Gross Margin Ratio
3. SG&A Ratio = SG&A / Sales
4. EBIT Margin Ratio = EBIT / Sales
5. Profit Margin Ratio = Net Income / Sales
6. Effective Tax Rate (ETR) = Tax Expense / Pretax Income
7. NOPAT = EBIT * (1 - ETR)
8. Asset Turnover = Sales / Assets
9. Days Sales in Inventory (DSI) = 365 / (COGS / Inventory)
10. Days Sales Outstanding (DSO) = 365 / (Sales / Accounts Receivable)
11. Days Payable Outstanding (DPO) = 365 / (COGS / Accounts Payable)
12. Cash Conversion Cycle = DSI + DSO - DPO
13. Return on Assets = Net Income / Assets
14. Return on Equity = Net Income / Owners' Equity
15. Market Capitalization (Market Cap) = Shares outstanding * Price per share
16. Return on Invested Capital = NOPAT / (Interest Bearing Debt + Market Cap)
17. Current Ratio = Current Assets / Current Liabilities
18. Quick Ratio = (CashSTI+A/R) / Current Liabilities
19. Debt to Capital Ratio = Debt / (Debt + Owners' Equity)
20. Interest Coverage Ratio = EBIT / Gross Interest Expense
21. Effective Interest Rate (after tax) = Gross Interest Expense / Debt * (1 - ETR)
22. Market-to-Book Ratio = Market cap / Owners' Equity
23. Free Cash Flow to Equity (FCFE) = Operating Cash Flow - Capex + Debt
24. % FCFE Returned = (Dividends paid + Shares repurchased) / FCFE
25. Dividend Payout Ratio = Dividends paid / Net Income
26. Dividend Yield = Dividends per share / Price per share
27. Total Return to Shareholders=(Stock Price+Dividends per share)/Begin. Price
28. Cost of Equity, using 3.5% Rf and 6% Risk Premium=Rf+Beta*Risk Premium
29. WACC = (Debt * Cost of Debt + Equity * Cost of Equity) / (Debt + Equity)
Obtain from www.finance.google.com. (On main page for your firm, beta is at the top.)
2014
34.8%
65.2%
23.6%
8.5%
4.8%
36.9%
3,023.6
1.8
88.7
#DIV/0!
51.0
#DIV/0!
8.5%
27.1%
65,049.6
2013
34.6%
65.4%
24.1%
7.8%
4.3%
37.8%
2,582.3
1.6
95.3
#DIV/0!
52.3
#DIV/0!
7.0%
19.3%
47,678.7
2012
34.3%
65.7%
24.2%
7.0%
3.9%
37.6%
2,223.2
1.5
94.6
#DIV/0!
51.2
#DIV/0!
6.0%
14.1%
42,390.9
2011
34.6%
65.4%
25.1%
6.5%
3.7%
36.7%
2,073.8
1.5
92.8
#DIV/0!
48.3
#DIV/0!
5.5%
11.1%
33,296.0
2010
35.1%
64.9%
24.6%
7.3%
4.1%
37.7%
2,216.7
1.4
95.9
#DIV/0!
50.2
#DIV/0!
6.0%
11.1%
33,579.2
4.0%
4.4%
4.3%
5.1%
5.5%
1.1
0.06
53.3%
9.3
2.9%
6.5
4854.0
97.4%
30.5%
1.3%
48.3%
10.5%
9.4%
1.17
1.2
0.06
47.0%
8.6
2.9%
4.0
4495.0
98.8%
32.1%
1.5%
23.0%
1.3
0.09
39.6%
8.2
3.0%
3.1
3944.0
129.2%
35.9%
1.6%
44.7%
1.3
0.16
31.6%
8.3
3.3%
2.0
3476.0
103.1%
35.2%
2.0%
10.3%
1.4
0.16
26.6%
9.9
3.4%
1.9
3956.0
80.6%
28.4%
1.7%
#DIV/0!
17
Cash Flow Data
Balance Sheet
Income Statement
Balance Sheet
Income Statement
Other
Common Size
Sales (Revenues)
SG&A Expense
Interest Expense
Pre Tax Income
Tax Expense
Net Income
Inventory
PP&E, net
Total Assets
Accounts Payable
Owners' Equity
YOY
Sales (Revenues)
SG&A Expense
Interest Expense
Pre Tax Income
Tax Expense
Net Income
Dividends per Share
Inventory
PP&E, net
Total Assets
Accounts Payable
Owners' Equity
Operating Cash Flow
Dividends paid
Share repurchases
2014
100.0%
65.2%
23.6%
8.5%
0.9%
7.6%
2.8%
4.8%
1.9%
0.0%
28.0%
31.7%
62.9%
#VALUE!
100.0%
16.1%
29.4%
35.7%
31.3%
2013
100.0%
65.4%
24.1%
7.8%
0.9%
6.9%
2.6%
4.3%
1.8%
0.0%
27.9%
31.5%
63.7%
#VALUE!
100.0%
15.3%
27.1%
32.1%
36.2%
2014
5.3%
4.9%
3.2%
15.5%
6.6%
16.4%
13.8%
18.0%
26.6%
24.3%
2.6%
#DIV/0!
-2.4%
-2.1%
-3.8%
#VALUE!
-2.8%
2.3%
5.3%
8.0%
-15.9%
-6.8%
19.9%
-6.4%
-15.4%
n/a*
12.1%
5.3%
26.7%
46.4%
2012
100.0%
65.7%
24.2%
7.0%
0.9%
6.2%
2.3%
3.9%
2.0%
0.0%
26.3%
30.0%
65.7%
0.0%
100.0%
14.3%
23.6%
27.8%
42.4%
2011
100.0%
65.4%
25.1%
6.5%
0.8%
5.8%
2.1%
3.7%
3.9%
0.0%
24.9%
30.0%
65.5%
0.0%
100.0%
13.0%
23.5%
22.7%
49.3%
2010
100.0%
64.9%
24.6%
7.3%
0.7%
6.6%
2.5%
4.1%
3.3%
0.0%
24.7%
29.6%
65.5%
0.0%
100.0%
12.9%
21.1%
19.5%
53.7%
2013
5.7%
5.3%
5.1%
16.5%
11.0%
17.1%
17.7%
16.7%
26.6%
12.9%
-13.5%
#DIV/0!
6.1%
5.2%
-3.0%
#VALUE!
0.2%
7.5%
15.2%
15.9%
-14.5%
-7.2%
9.3%
-22.4%
42.4%
2012
0.6%
1.0%
-2.8%
8.6%
10.9%
7.9%
10.4%
6.5%
18.2%
17.0%
-48.8%
#DIV/0!
2.9%
-2.9%
-2.2%
#DIV/0!
-2.7%
7.0%
-2.3%
19.0%
-16.2%
-10.6%
-13.5%
-33.8%
-37.2%
2011
2.9%
3.8%
4.9%
-7.9%
9.8%
-10.0%
-12.4%
-8.5%
0.7%
26.2%
15.8%
#DIV/0!
0.4%
1.1%
-0.5%
#DIV/0!
-0.4%
0.0%
10.8%
16.0%
-8.7%
-8.3%
12.9%
37.6%
-34.2%
4.1%
-15.5%
-10.9%
21.2%
8.8%
49.6%
30.8%
42.3%
13.3%
12.2%
54.4%
8.2%
* This particular YOY is generally not informative, since it is a "change of a change."
18

Below is a bar graph of a time series of Lowes cash flows. Sometimes graphical presentations allow for a better understanding of the
trends.
Below we provide the same data and ratios for Home Depot, the firm we have chosen as a comp (comparable firm) which we will
need for benchmarking.
19
Cash Flow Data
Balance Sheet
Income Statement
Header Information
Financial Data: Home Depot
Other
Ticker
Company Name
NAICS (6 digit)
NAICS (5 digit)
NAICS (4 digit)
Date (year)
Sales (Revenues)
SG&A Expense
Interest Expense
Pre Tax Income
Tax Expense
Net Income
Dividends per Share
Inventory
PP&E, net
Total Assets
Accounts Payable
Owners' Equity
Operating Cash Flow
Dividends paid
Share repurchases
HD
HOME
DEPOT
INC
444110
44411
4441
2014
83,176.00
54,222.00
16,801.00
10,502.00
830
9,976.00
3,631.00
6,345.00
$4.71
$1.88
1,723.00
1,484.00
11,079.00
15,302.00
22,720.00
1,353.00
39,946.00
5,807.00
11,269.00
17,197.00
9,322.00
1,318.00
8,242.00
-1,442.00
-1,271.00
2,232.00
-2,530.00
-7,000.00
-7,071.00
$104.42
HD
HOME
DEPOT
INC
444110
44411
4441
2013
78,812.00
51,422.00
16,597.00
9,166.00
713
8,467.00
3,082.00
5,385.00
$3.76
$1.56
1,929.00
1,398.00
11,057.00
15,279.00
23,348.00
1,289.00
40,518.00
5,797.00
10,749.00
14,724.00
12,522.00
1,380.00
7,628.00
-1,389.00
-1,507.00
3,933.00
-2,243.00
-8,546.00
-6,652.00
$76.85
HD
HOME
DEPOT
INC
444110
44411
4441
2012
74,754.00
48,912.00
16,411.00
7,863.00
635
7,221.00
2,686.00
4,535.00
$3.00
$1.16
2,494.00
1,395.00
10,710.00
15,372.00
24,069.00
1,170.00
41,084.00
5,376.00
11,462.00
10,796.00
17,777.00
1,484.00
6,975.00
-1,312.00
-1,432.00
-32
-1,743.00
-3,984.00
-5,034.00
$66.92
HD
HOME
DEPOT
INC
444110
44411
4441
2011
70,395.00
46,133.00
16,028.00
6,661.00
609
6,068.00
2,185.00
3,883.00
$2.47
$1.04
1,987.00
1,245.00
10,325.00
14,520.00
24,448.00
1,120.00
40,518.00
4,856.00
9,376.00
10,788.00
17,898.00
1,537.00
6,651.00
-1,221.00
-1,129.00
966
-1,632.00
-3,470.00
-4,048.00
$44.39
HD
HOME
DEPOT
INC
444110
44411
4441
2010
67,997.00
44,693.00
15,849.00
5,839.00
533
5,273.00
1,935.00
3,338.00
$2.01
$0.95
545
1,085.00
10,625.00
13,479.00
25,060.00
1,187.00
40,125.00
4,717.00
10,122.00
9,749.00
18,889.00
1,623.00
4,585.00
-1,096.00
-1,012.00
-31
-1,569.00
-2,608.00
-4,451.00
$36.77
20
Valuation
StrengthFinancial Mgt. Effective-ness
Efficiency
Profitability
Ratios: Home Depot
Bet
a
Ratios
1. Gross Margin Ratio = (Sales COGS) / Sales, or = 1 COGS / Sales
2. Cost Ratio = COGS / Sales, or = 1 - Gross Margin Ratio
3. SG&A Ratio = SG&A / Sales
4. EBIT Margin Ratio = EBIT / Sales
5. Profit Margin Ratio = Net Income / Sales
6. Effective Tax Rate (ETR) = Tax Expense / Pretax Income
7. NOPAT = EBIT * (1 - ETR)
8. Asset Turnover = Sales / Assets
9. Days Sales in Inventory (DSI) = 365 / (COGS / Inventory)
10. Days Sales Outstanding (DSO) = 365 / (Sales / Accounts Receivable)
11. Days Payable Outstanding (DPO) = 365 / (COGS / Accounts Payable)
12. Cash Conversion Cycle = DSI + DSO - DPO
13. Return on Assets = Net Income / Assets
14. Return on Equity = Net Income / Owners' Equity
15. Market Capitalization (Market Cap) = Shares outstanding * Price per share
16.
17.
18.
19.
20.
Return on Invested Capital = NOPAT / (Interest Bearing Debt + Market Cap)

Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (CashSTI+A/R) / Current Liabilities
Debt to Capital Ratio = Debt / (Debt + Owners' Equity)
Interest Coverage Ratio = EBIT / Gross Interest Expense
21. Effective Interest Rate (after tax) = Gross Interest Expense / Debt * (1 - ETR)
22. Market-to-Book Ratio = Market cap / Owners' Equity
23. Free Cash Flow to Equity (FCFE) = Operating Cash Flow - Capex + Debt
24. % FCFE Returned = (Dividends paid + Shares repurchased) / FCFE
25. Dividend Payout Ratio = Dividends paid / Net Income
26. Dividend Yield = Dividends per share / Price per share
27. Total Return to Shareholders=(Stock Price+Dividends per share)/Begin.
Price
28. Cost of Equity, using 3.5% Rf and 6% Risk Premium=Rf+Beta*Risk Premium
29. WACC = (Debt * Cost of Debt + Equity * Cost of Equity) / (Debt + Equity)
Obtain from www.finance.google.com. (On main page for your firm, beta is at the
top.)
2014
34.8%
65.2%
20.2%
12.6%
7.6%
36.4%
6,679.5
2.1
74.6
6.5
39.1
42.00
15.9%
68.1%
137,625.
6
2013
34.8%
65.2%
21.1%
11.6%
6.8%
36.4%
5,829.6
1.9
78.5
6.5
41.1
43.81
13.3%
43.0%
106,053.
0
2012
34.6%
65.4%
22.0%
10.5%
6.1%
37.2%
4,938.2
1.8
79.9
6.8
40.1
46.62
11.0%
25.5%
99,309.
3
2011
34.5%
65.5%
22.8%
9.5%
5.5%
36.0%
4,262.5
1.7
81.7
6.5
38.4
49.73
9.6%
21.7%
68,227.
4
2010
34.3%
65.7%
23.3%
8.6%
4.9%
36.7%
3,696.3
1.7
86.8
5.8
38.5
54.07
8.3%
17.7%
59,677.
7
4.3%
4.8%
4.5%
5.4%
5.3%
1.4
0.28
64.8%
12.7
1.4
0.31
54.0%
12.9
1.3
0.34
37.8%
12.4
1.5
0.34
37.6%
10.9
1.3
0.16
34.0%
11.0
3.1%
3.1%
3.7%
3.6%
3.5%
14.8
9032.0
105.5%
39.9%
1.8%
8.5
10172.0
106.1%
41.7%
2.0%
5.6
5631.0
101.7%
38.4%
1.7%
3.8
6396.0
79.8%
42.0%
2.3%
3.2
3458.0
120.8%
47.0%
2.6%
38.3%
17.2%
53.4%
23.6%
#DIV/0!
9.7%
9.0%
1.04
21
Cash Flow Data
Balance Sheet
Income Statement
Balance Sheet
Income Statement
Other
Common Size
Sales (Revenues)
SG&A Expense
Interest Expense
Pre Tax Income
Tax Expense
Net Income
Inventory
PP&E, net
Total Assets
Accounts Payable
Owners' Equity
YOY
Sales (Revenues)
SG&A Expense
Interest Expense
Pre Tax Income
Tax Expense
Net Income
Dividends per Share
Inventory
PP&E, net
Total Assets
Accounts Payable
Owners' Equity
Operating Cash Flow
Dividends paid
Share repurchases
2014
100.0%
65.2%
20.2%
12.6%
1.0%
12.0%
4.4%
7.6%
4.3%
3.7%
27.7%
38.3%
56.9%
3.4%
100.0%
14.5%
28.2%
43.1%
23.3%
2013
100.0%
65.2%
21.1%
11.6%
0.9%
10.7%
3.9%
6.8%
4.8%
3.5%
27.3%
37.7%
57.6%
3.2%
100.0%
14.3%
26.5%
36.3%
30.9%
2014
5.5%
5.4%
1.2%
14.6%
16.4%
17.8%
17.8%
17.8%
25.3%
20.5%
-10.7%
6.2%
0.2%
0.2%
-2.7%
5.0%
-1.4%
0.2%
4.8%
16.8%
-25.6%
-4.5%
8.0%
3.8%
-15.7%
n/a*
12.8%
-18.1%
6.3%
35.9%
2012
100.0%
65.4%
22.0%
10.5%
0.8%
9.7%
3.6%
6.1%
6.1%
3.4%
26.1%
37.4%
58.6%
2.8%
100.0%
13.1%
27.9%
26.3%
43.3%
2011
100.0%
65.5%
22.8%
9.5%
0.9%
8.6%
3.1%
5.5%
4.9%
3.1%
25.5%
35.8%
60.3%
2.8%
100.0%
12.0%
23.1%
26.6%
44.2%
2010
100.0%
65.7%
23.3%
8.6%
0.8%
7.8%
2.8%
4.9%
1.4%
2.7%
26.5%
33.6%
62.5%
3.0%
100.0%
11.8%
25.2%
24.3%
47.1%
2013
5.4%
5.1%
1.1%
16.6%
12.3%
17.3%
14.7%
18.7%
25.3%
34.5%
-22.7%
0.2%
3.2%
-0.6%
-3.0%
10.2%
-1.4%
7.8%
-6.2%
36.4%
-29.6%
-7.0%
9.4%
5.9%
5.2%
2012
6.2%
6.0%
2.4%
18.0%
4.3%
19.0%
22.9%
16.8%
21.5%
11.5%
25.5%
12.0%
3.7%
5.9%
-1.6%
4.5%
1.4%
10.7%
22.2%
0.1%
-0.7%
-3.4%
4.9%
7.5%
26.8%
2011
3.5%
3.2%
1.1%
14.1%
14.3%
15.1%
12.9%
16.3%
22.9%
10.1%
264.6%
14.7%
-2.8%
7.7%
-2.4%
-5.6%
1.0%
2.9%
-7.4%
10.7%
-5.2%
-5.3%
45.1%
11.4%
11.6%
28.7%
114.5%
32.1%
14.8%
6.8%
14.8%
24.4%
50.8%
4.0%
33.1%
-9.1%
20.7%
* This particular YOY is generally not informative, since it is a "change of a change."
22
At this point, we are ready to put together the report to senior management. This sample report is below.
23
Example of Report to Senior Management

Mr. Niblock:
We have been engaged to review your firms financial statements and other documents in order to conduct an analysis of the firms
financial condition and results of operations. Our analysis has identified potential issues that we believe should be the focus of your
management teams attention. We have included appropriate benchmarks against your main rival, The Home Depot (HD).
Below we summarize the main observations of our analysis.
Lowes top line hit $56.2 billion, up 5.3% YOY, which came in slightly under HDs 5.5% YOY growth rate (from $78.8 billion to $83.2
billion).
Lowes YOY growth in sales (5.3%) outpaced YOY growth in COGS (4.9%), leading to an expansion in the gross margin ratio to 34.8%
in 2014, from 34.6% in 2013. YOY growth in sales also beat YOY growth in SG&A (5.3% versus 3.2%). Together, these results drove
EBIT margins to 8.5% in 2014, from 7.8% in 2012, as well as profit margins to 4.8%, from 4.3%.
Corresponding results for HD show COGS YOY growth of 5.4%, whereas sales YOY growth was 5.5%, leading to relatively modest
expansion in the gross margin ratio, from 34.75% to 34.81% YOY. HDs SG&A expense grew only 1.2% YOY (for the most recent
year). Together, these results drove EBIT margins to 12.6% in 2014, from 11.6% in 2013, as well as profit margins to 7.6%, from 6.8%
in 2013.
In part, due to the above margin improvements, Lowes bottom line increased 18.0% YOY, slightly ahead of HD, whose net income
growth was 17.8%.
Except for the virtual dead heat in gross margin ratios (34.8% for each firm, rounded), HDs other primary margins (EBIT margin and
profit margin) remain significantly higher. Specifically, HDs and Lowes EBIT margins, respectively, are 12.6% and 8.5%, for the most
recent year. HDs and Lowes profit margins, respectively, are 7.6% and 4.8%. The main culprit for Lowes appears to continue to be
SG&A. As a percentage of sales, HDs SG&A is only 20.2%, compared to 23.6% for Lowes.
Although Lowes margins and earnings show significant steps in the right direction (and are closing the gap with HD), Lowes still has
major work to do in asset turnover and inventory turnover (and days sales in inventory). For instance, Lowes asset turnover is 1.8.
Although this is an improvement from 2013s 1.6, HD achieved an asset turnover over 2.1, up from 1.9. Additionally, days sales in
inventory for Lowes, although significantly improved from 95.3 in 2013 to 88.7 in 2014, continues to lag behind that of its chief rival.
HDs days sales are significantly lower (by 14 days, or 74.6 versus Lowes 88.7). Plus, HDs days sales continue to show improvement,
from 78.5 in 2013 to 74.6 in 2014. In fact, each year, for the past five years, HD has managed to increase its inventory turns, resulting
in reduced days sales. Lowes results, however, have been quite sporadic over the same time period.
Similar takeaways are found in management effectiveness metrics. For instance, HD hugely outpaces Lowes in ROA (15.9% versus
8.5%) and ROE (68.1% versus 27.1%). ROIC is relatively close: 4.3% for HD versus 4.0% for Lowes. We do note, however, that the
surge in ROE for HD (from 25.5% in 2012 to 68.1% in 2014) was significantly aided by share repurchases.
With respect to financial strength and capital structure, Lowes increased its debt another 8% YOY (after the previous years 15.9%
increase), in part to take advantage of low interest rates. Similarly, HDs interest bearing debt increased another 16.8%, after an eyepopping 36.4% increase over the previous time period. In absolute amounts, Lowes interest bearing debt stands at $11.4 billion, up
from $10.5 billion; HDs is at $17.2 billion, up from $14.7 billion.
As a result of added balance sheet leverage, combined with sizable share repurchases, Lowes debt-to-cap increased from 47.0% to
53.3%. HDs same measure increased from 54.0% to 64.8%. Notwithstanding the added debt, interest coverage ratios held
reasonably steady (for HD) or increased (for Lowes), signifying reasonable strength to handle debt service. Specifically, interest
coverage for Lowes increased from 8.6 to 9.3. Interest coverage for HD decreased slightly (from 12.9 to 12.7). The effective interest
rates for both firms hover around 3%, highlighting the debt markets attractiveness for capital.
Both firms market cap continued upward movements. Lowes market cap attained a level of $65.0 billion, up from $47.7 billion from the
previous year. Similarly, HDs market cap improved to an astounding $137.6 billion, from $106 billion.
Equity valuations have exhibited dramatic YOY increases over the entire time series for both firms. These upward marches in valuation
capture a multitude of firm specific improvements for sure, but also the macro effects of easy money and rebounded housing.
Lowes liquidity position seems strong at least in the near term, as discussed in its MD&A. Moreover, operating cash flow increased
significantly YOY (almost 20%) to just under $5 billion, which was used primarily for dividends and share repurchases (and only
modestly for capex). By comparison, HDs operating cash flow increased 8% YOY, from $7.6 billion to $8.2 billion. HD used sizable
chunks of cash for similar purposes, i.e., dividends and share repurchases
Lowes budgeted capex of $1.4 billion for the next fiscal year is up from last years actual capex of $880 million. However, 40% of the
planned capex is for existing stores. An additional 30% is for corporate programs to enhance the customer experience and for
corporate infrastructure. The remainder (30%) will be for new stores or store expansion. Therefore, altogether, 70% is primarily
targeted for maintenance capex with only 30% for growth.
24

The compound annual growth rate (CAGR) for Lowes dividend over the 20010-2014 time period is 10.0%, outpacing the CAGR for net
income over the same time period (only 8%). Lowes share repurchases have averaged about $3.5 billion yearly over the past five
years. Combined with the dividend (which has averaged $695 million over the same time period), Lowes has aggressively returned
cash to shareholders. In absolute amounts, the total payment for dividends and share repurchases over the past five years is $21
billion. The same total for HD is $35.3 billion. Compared to total capex (which was $6.2 billion over the same time period), Lowes has
chosen to return cash to investors, rather than expand. (Similarly, HD has spent a total of only $6.5 billion on capex over the previous
five years.)
Indeed, the focus for both firms over the recent past has been on returning cash to shareholders. In addition to the large absolute
amounts of cash returned over the past five years, the dividend payout ratio for Lowes has averaged 32.4% over the same period of
time (which is slightly below the stated target of 35%). For HD, the payout ratio has averaged a hefty 41.8%.
Also, for both firms, the percentage of free cash flow returned to shareholders over the 2010-2014 time period has been significant and
sustained. The generosity implied by the sizable amounts of capital flows to owners may also suggest, however, a cautious view of
each firms future, as the demographics for DIY markets change, as easy money becomes less easy, and as other macro factors line up
against the sector. The relatively slim capex budgets support this concern.
Although macro-economic effects are largely outside managements control, Lowes can work to continue making progress with its
margins, which, relative to its chief rival, continue to be underachieving. As highlighted above, HD has had relatively robust margins
and faster inventory turns, a winning combination relative to Lowes.
Lowes results may be explained in part by its product mix and target markets, relative to HD, impacting its margins and inventory turns.
Moreover, Lowes high touch customer interface and emphasis on customer experience is costly as seen in the considerably higher
SG&A ratio (compared to HD). As mentioned, Lowes common size SG&A was 23.6%. HDs, by comparison, was 20.2%. This, along
with the significant differential in days sales in inventory (14 days), should likely be the focus of managements attention.
In conclusion, the data show Lowes is still, for the most part, headed in the right direction, closing the gap with HD. Nonetheless, it still
lags considerably behind its larger competitor. Greater operating margin (and profit margin) expansion and better inventory turns would
be welcomed sights.
These are our conclusions from our analysis. We will gladly return next year to offer another assessment. In the meantime, if
additional services would be of interest, we would be glad to be engaged for this purpose.
Sincerely,
Financial Diagnostics, LLC
25
Note to Students on Layout of Deliverable for the Course

In terms of the course deliverable, you must submit the following:
1.
2.
3.
The Report to Senior Management (in your own words)

The twenty-four Data Items (which will serve as research and supporting evidence for your report to senior management)
Financial Data and Ratios for the Project Firm and for the Competitor Firm
You should include a Table of Contents for the deliverable. This Table of Contents should have appropriately descriptive titles for the
sections.
The project must be in a single document, preferably a pdf document, and must have a professional appearance of your own choosing
or design.
You may use this sample project as a guide and you may cut and paste the data for your firm into this document. If you do, remove all
extraneous instructions that are included in this document. You should submit only information and analysis relevant for your firm and
its competitor.
26

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Financial Statement Analysis (FSA) Project

Date: May 2015

Primary Products and Services...............................................................................................................................................3

Primary Customers and Market...............................................................................................................................................4

CEO Letter to Shareholders....................................................................................................................................................6

Descriptions of Firms Strategy, Vision Statement, or Goals..........................................................................................7

Description of Competitive Environment and Identification of Chief Competitor....................................................................7

Decription of Business Outlook from Firms Perspective........................................................................................................8

Description of Major Legal Proceedings..................................................................................................................................8

Auditors Audit Opinion of Financial Statements.....................................................................................................................8

Firms Dividend Policy (if given).......................................................................................................................................10

Firms Share Repurchase Policy (if given).......................................................................................................................10

Synopsis (excerpts) of an Equity Analysts Research Report..........................................................................................11

Synopsis of a Recent Corporate Announcement.............................................................................................................11

Description of any Impairments for the Most Recent Fiscal Year....................................................................................12

Tax Reconciliation Schedule............................................................................................................................................12

Disclosures about Operating Lease Payments................................................................................................................12

Type of Pension Plan and Funded Status (if applicable).................................................................................................13

CEO Name and Brief Biographical Information...............................................................................................................13

Disclosures about Executive Compensation....................................................................................................................14

Stephen Bryan, Ph.D., 2015

Recommended Data Sources and Access Procedures

Data Sources Table

Instructions for Access

10-K, accessed through sec.gov

Proxy, accessed through sec.gov

Current Reports (SEC Form 8-K), accessed through sec.gov

Stephen Bryan, Ph.D., 2015

Data Sources Table

Instructions for Access

Annual Report (CEOs Letter to Shareholders), accessed through 1.

Access www.YOUR_FIRM.com (where YOUR_FIRM is the

For Fordham University:

10-K Table of Contents

Stephen Bryan, Ph.D., 2015

Directors, Executive Officers and Corporate Governance

Primary Products and Services

Source: Lowes 10-K, Item 1

Stephen Bryan, Ph.D., 2015

2. Primary Customers and Market

Stephen Bryan, Ph.D., 2015

Stephen Bryan, Ph.D., 2015

3. CEO Letter to Shareholders

Stephen Bryan, Ph.D., 2015

Descriptions of Firms Strategy, Vision Statement, or Goals

5. Description of Competitive Environment and Identification of Chief Competitor

Stephen Bryan, Ph.D., 2015

6. Decription of Business Outlook from Firms Perspective

7. Description of Major Legal Proceedings

8. Auditors Audit Opinion of Financial Statements

Stephen Bryan, Ph.D., 2015

Stephen Bryan, Ph.D., 2015

14. Firms Dividend Policy (if given)

Stephen Bryan, Ph.D., 2015

15. Firms Share Repurchase Policy (if given)

16. Synopsis (excerpts) of an Equity Analysts Research Report

17. Synopsis of a Recent Corporate Announcement

Stephen Bryan, Ph.D., 2015

Stephen Bryan, Ph.D., 2015

20. Tax Reconciliation Schedule

21. Disclosures about Operating Lease Payments

Stephen Bryan, Ph.D., 2015

22. Type of Pension Plan and Funded Status (if applicable)

23. CEO Name and Brief Biographical Information