Sales for Home Depot

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CHAPTER 1

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Sales for Home Depot decreased because of the economic conditions during the years shown.

One of the hardest hit sectors of the economy was housing, which means that builders

purchased less materials from Home Depot to construct houses; existing homeowners were

hurt during the recession and had less money to purchase goods from the company for home

improvements. Profits decreased because the drop in sales was not offset with an equal drop

in expenses. Home Depot was not able to reduce its fixed and variable expenses as quickly as

the company saw its revenue drop. Assets decreased as the company depreciated existing

stores without adding new locations--again, due to the weakness in the economy. Equity

remained flat because the company kept ("retained") more of its profits by lowering its

dividends paid to shareholders. Finally, the cash balance slightly increased due to less cash

outflows for investments in new stores; due to the economy, the company did not invest nearly

as much cash in building new stores, keeping that cash in the business for the time being.

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Companies would usually engage in this type of behavior to try to improve their stock price. By

showing higher revenues or lower expenses investors are more likely to reward the company

with a higher stock price. Companies that have negative cash flow are under a lot of pressure

to maintain a high stock price since selling stock is the only way to fund the business. This

type of incentive can lead to questionable behavior.

The ethical implications are significant because if investors lose faith in the financial statements

that are reported this would severely impact the stock market. A strong driver to a robust

economy is access to capital (stock markets). If this source is reduced because investors don't

believe the numbers that are reported, a very bad impact on the overall economy would result.

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This is the normal statement that an auditor would make about a company whose books it had

audited and found no significant problems. This would be part of what is called a "non-qualified

opinion". If there was a particular item that the auditors did not agree with they would issue a

"qualified opinion" - they would agree with everything except the qualified item that would be

identified.

"In our opinion", shows that the statement represents the auditor's opinion and not a fact;

"fairly, in all material respects" means that the auditors can not say that every single number is

exactly accurate to the penny but that the