Project Three for Financial Accounting

Part one—10 points
Locate the current year financial reports for Home Depot by clicking on the Investor Relations and Latest Annual Report link at www.homedepot.com (Links to an external site.). Also, refer to pages 904-908 in Chapter 17 of your textbook.

a. Prepare a horizontal analysis of each item on the balance sheet and income statement comparing the last two years.
b. Prepare a vertical analysis of each item on the last two years of the income statement and balance sheet.

Part two—5 points
Chapter 16 discusses free cash flow on page 852.

a) Calculate free cash flow for Home Depot for the two most recent reported years. You will need to refer to the Statement of Cash Flows. Show your calculations.

b) Interpret the results of your calculations based on the textbook discussion in a short paragraph.

Part three—5 points
Chapter 17 of the textbook discusses horizontal and vertical analysis of accounts receivable and sales on pages 904-908.

a) Based on your horizontal and vertical analysis from part one, provide a brief analysis of accounts receivable for Home Depot.

b) Calculate the receivables turnover ratio and days-in-receivable ratio for the most current year for Home Depot. Show your calculations. Comment briefly on what your ratios tell you. (assume all sales are credit sales and use net sales in the ratio). See pages 918-919.

c) Refer to the notes to the financial statements and briefly discuss why Home Depot does not report an allowance for accounts receivable. They refer to the allowance as a valuation reserve. They also refer to the word material. Read page 324 to understand what materiality means.

Part four—5 points
After completing Parts 1 through 3 of this assignment, complete part four. This part of the project is your opinion only and will not be graded on correctness, just on the thought that goes into your paragraphs.

a) Write a short paragraph on your opinion of Home Depot as an investment opportunity. Would stock in the corporation be a good investment?

b) Write a short paragraph on your opinion of this project. Has it helped you to better understand financial statements?

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