Interest Coverage Ratio

In order to move from the level of the 1985 year to the level of the 1986 the Home Depot have to increase sales per store by more that 4 millions. The best way for the Home Depot to achieve it and to invest in its growth on sustainable basis company would need to generate more cash from its own operations. The successful marketing strategy and promotional activity, decreasing time of opening the new stores, the more effective operation strategy can have a positive effect on growth rate of sales. New training program for store managers, department heads and sales personnel would help to increase the sales. Also, introduction of the new product lines, improving quality of the existing product lines, improving the store operation system would give the competitive advantage and as following the positive effect on the performance of the company and increase of sales.

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Successful management of the company and choosing the right strategies can revolve the declining stock price, improve profitability and growth prospects of the Home Depot, which makes shareholders clearly worry about the company in the year 1985. The specific recommendation in respect overall strategy would be include: marketing strategy as promotion of brand name products, introduction of new marketing approaches to meet specific customer needs in the changing markets environment; strategic planning; innovative technology development; business strategy as determining product differential mix and developing competitive pricing strategy; implementing non-interest expenses controls.

The Home Depot’s profit margin, operating assets turnover, inventory turnover and fixed assets turnover steadily was decreased in the period 1983-1985 fiscal years. It may indicate the problems in operating efficiency. Management needs to pay attention to the operating activities. Also areas of attention would be return on common shareholders’ equity that sharply decreased during the same period and interest coverage ratio that dropped 21% in 1985 fiscal year. In respect to operation management, company could be improved in several directions:

Distribution: effective use of logistics management techniques; – Management information systems: innovative merchandising, efficient control of inventories, adjusting the store’s hours of operation; – Human resources: knowledgeable sales staff, train and re-train employees; – Production: introduction of new merchandise, timely reviewing current merchandise list, improving quality standards.

The Home Depots’ cash flow from operations was not sufficient to finance their investing activities. Cost of acquisition of the Bowater Home Center and opening numbers of new stores was significant. The Home Depot engaged in long-term borrowing to make up the shortfall. Per shareholders concern of declining profitability, company needs to improve financial conditions by maintaining successful financial policies.

It’s could developed liquidity policy that based on maintaining the level of liquid assets needed to ensure it can meet its obligations, in terms of debt. Asset/liability management could govern by explicit guidelines for comprehensive management and control of risk exposures resulting from fluctuations in interest rate and level of inflation. As a matter of internal policy, the Home Depot could maintaining capitalization policy and set an adequate level of capital that will inspire confidence in the investor community.