Home Depot Inc (HD)

Short-term

Turnover ratios

The activity ratios of Home Depot Inc over the past five years reflect its operational efficiency in managing inventory, receivables, payables, and working capital.

1. Inventory turnover:
- Home Depot's inventory turnover has ranged from 4.20 to 5.25 over the past five years, with a current value of 4.85. This indicates that the company is effectively managing its inventory by selling and replenishing stock efficiently. A higher turnover ratio suggests that Home Depot is selling its inventory more quickly, which can help prevent excess inventory holding costs.

2. Receivables turnover:
- The receivables turnover ratio for Home Depot has fluctuated between 44.12 and 52.34 over the same period, with the most recent value being 45.87. A high turnover ratio indicates that the company efficiently collects payments from customers, translating sales into cash quickly. This can help improve liquidity and reduce the risk of bad debts.

3. Payables turnover:
- Home Depot's payables turnover has ranged from 7.45 to 10.13 over the past five years, with the latest value standing at 10.13. A higher payables turnover ratio suggests that the company is managing its accounts payable effectively, potentially taking advantage of trade credit terms and optimizing cash flows. This indicates strong relationships with suppliers and efficient management of trade payables.

4. Working capital turnover:
- The working capital turnover ratio measures how efficiently a company is utilizing its working capital to generate sales. Home Depot's working capital turnover has shown significant variation over the past five years, with a notable spike in 2022 to 417.56, which may indicate a specific event or change in operation during that period. As of the most recent year, the ratio stands at 19.67, indicating that the company is effectively utilizing its working capital to generate sales.

Overall, these activity ratios provide insights into Home Depot Inc's operational efficiency in managing key aspects of its business, such as inventory, receivables, payables, and working capital turnover. The trends and values of these ratios can help stakeholders assess the company's performance and effectiveness in utilizing its resources to drive revenue and profitability.

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Average number of days

Days of inventory on hand (DOH) measures how many days, on average, inventory is held before being sold. A lower DOH indicates efficient inventory management and faster inventory turnover. Over the past five years, Home Depot Inc's DOH has fluctuated, with the lowest being 69.55 days in January 2021 and the highest at 86.82 days in January 2023. The current DOH of 75.28 days in January 2024 is relatively high compared to previous years, suggesting a slower turnover of inventory.

Days of sales outstanding (DSO) indicates the average number of days it takes for the company to collect payment after a sale is made. Lower DSO values are favorable as they indicate effective credit management and prompt collection of receivables. Home Depot Inc's DSO has remained relatively stable over the years, with a range between 6.97 days in February 2020 and 8.27 days in January 2022 and 2023. The current DSO of 7.96 days in January 2024 is within the historical range, indicating efficient collection practices.

Number of days of payables shows the average number of days the company takes to pay its suppliers. A higher number of days of payables suggests the company is taking longer to pay its suppliers, which can positively impact cash flow. Home Depot Inc's days of payables have shown fluctuations in the past five years, ranging from 36.02 days in January 2024 to 48.98 days in January 2022. The current days of payables of 36.02 days in January 2024 indicate prompt payment to suppliers compared to the previous years.

Overall, Home Depot Inc has managed its activity ratios effectively over the past five years, with relatively stable days of sales outstanding and fluctuations in days of inventory on hand and days of payables. Efficient inventory turnover, effective receivables collection, and supplier payment practices are crucial for maintaining a healthy cash conversion cycle and supporting the company's financial stability and liquidity.

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See also:

Home Depot Inc Short-term (Operating) Activity Ratios

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Long-term

The fixed asset turnover ratio for Home Depot Inc has shown a consistent increase over the past five years, reaching the highest value of 6.14 in January 2023 and slightly declining to 5.84 in January 2024. This indicates that the company generated $5.84 of revenue for every dollar invested in fixed assets in the most recent period, reflecting efficient utilization of fixed assets to generate sales.

On the other hand, the total asset turnover ratio fluctuated over the same period, with the highest value of 2.15 in February 2020 and the lowest value of 1.87 in January 2021. The ratio stood at 1.99 in January 2024, suggesting that for every dollar invested in total assets, Home Depot Inc generated $1.99 in revenue. This implies a slight decrease in efficiency in utilizing total assets to generate sales in the most recent period compared to the previous years.

Overall, while the fixed asset turnover ratio demonstrates a positive trend, indicating effective management of fixed assets, the total asset turnover ratio shows some variability in efficiency in utilizing all assets to generate revenue over the years. This analysis suggests that further scrutiny of asset management practices may be warranted to optimize overall performance.

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See also:

Home Depot Inc Long-term (Investment) Activity Ratios