Calculated by dividing current assets by current liabilities, which in this case is 1.01 for Home Depot (indicating a balance but minimal cushion).

Please watch the recorded examples above along with the Home Depot example. And read and follow carefully the instructions in “Project 3 Instructions 2025 Spring.pdf” document. Refer to “Mergent Online-comparison….pdf” to see how you get the industry benchmark ratios. company clx

summary of the videos: This is a detailed explanation of how to calculate and analyze various financial ratios using Excel, focusing on liquidity, asset management, debt management, and profitability. Here’s a summary of the key points:
Liquidity Ratios:

Current Ratio: Calculated by dividing current assets by current liabilities, which in this case is 1.01 for Home Depot (indicating a balance but minimal cushion).

 

Quick Ratio: Similar to the current ratio but excludes inventory. It’s also calculated by dividing current assets (minus inventory) by current liabilities.
You should always use formulas with cell references in Excel, not hard-coded numbers, for accurate results.
Comparison & Interpretation:
Comparing Home Depot’s ratios to the industry average, the company’s ratios appear worse than average, signaling a potential need for improvement.

Trends should be analyzed (e.g., if ratios are fluctuating negatively or improving), not just absolute numbers.
Asset Management Ratios:
Inventory Turnover: Cost of Goods Sold divided by inventory, showing how efficiently inventory is being sold.
Net Fixed Asset Turnover: Sales divided by net fixed assets, reflecting how well assets are being used.

Total Asset Turnover: Sales divided by total assets, indicating how well the company is utilizing its assets.
Benchmarks are used to compare ratios, and trends should be assessed for improvement or decline.
Debt Management Ratios:
Interest Coverage Ratio (Times Interest Earned): EBIT divided by interest expense, which helps assess the company’s ability to meet interest payments.

Debt-to-Equity Ratio: Measures financial leverage and the proportion of debt to equity in the company’s capital structure.
Profitability Ratios:
Operating Margin: EBIT divided by total assets, indicating operating efficiency.
Profit Margin: Net income divided by sales, showing the percentage of revenue that is profit.
Return on Equity (ROE) and Return on Assets (ROA): ROE shows how much profit is generated with shareholder equity, while ROA shows how effectively assets are being used to generate profits.
Excel Charting:

After calculating ratios, create charts to visualize trends and comparisons, making sure to adjust for percentages when comparing ratios like profit margin.
Negative Equity Issue: Home Depot’s negative equity is largely due to the company buying back its shares at a higher price than it initially sold them for, leading to a reduction in equity value.

Last Completed Projects