Submitted by: Submitted by nicayla85
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Category: Business and Industry
Date Submitted: 03/19/2016 01:22 PM
Using Lowe’s 2014 annual report/10K for the period ending January 30th, 2015 we have calculated the following ratios:
Profitability:
1.Earnings per share = (Net income-referred dividends)/weighted average number of shares=$2.71 per share.
Earnings per share is one of the most widely quotes financial statistic in the business world. Investors prefer to see a stable increase in earnings per share each year. In Lowe’s case we can notice that earnings per share have increased by $0.57 in 2015 (EPS in fiscal year ending January 31, 2014 was $2.14). An increase in earnings per share generally represents an increase in profitability of the company and creates certainty as to the company’s prospects for future growth.
Lowe’s MDA says on page 57 that the company is using a two-class method to calculate earnings per share. Using this method, Lowe’s allocates net earnings to each class of common stock and participating securities.
2. Net Profit Margin=net income/net sales=4.8%
The net profit margin ratio measures how much operating profit the company earns from each sales dollar. A higher ratio indicates a better net profit margin for the company.
Per Lowe’s MDA, page 17 “Net earnings increased 18.0% to $2.7 billion during fiscal year 2014, and diluted earnings per share increased 26.6% to $2.71. Net sales for 2014 were $56.2 billion, a 5.3% increase over fiscal year 2013”.
3. Gross Profit Margin=Gross profit/net sales=34.79%
This ratio is important to calculate and include in the financial analysis because a decline in GPM is a concern because it indicates that the company has less ability to pass on increased product cost to costumers, or that the company is not effectively managing product costs.
Per Lowe’s 2014 annual report, page 34, the gross margin increased slightly from 34.59 % in fiscal year ending January 31, 2014 to 34.79 % in fiscal year ending January 31, 2015.
In the MDA report, Lowe’s states that the increase of the above Gross Margin ratio...