Home Depot: Corporate Valuation

The Home Depot, Inc. (“Home Depot”) is a leading warehouse retailer in the do-it-yourself (“DIY”) market founded in 1978. When it was founded, Home Depot had three stores in the Atlanta, Georgia area and by 1985 Home Depot had fifty stores in the Sunbelt. Home Depot success was mainly structured on maintaining cost leadership without sacrificing customer service. By using the warehouse retail model, Home Depot was able to keep costs and overhead relatively low. At the same time, Home Depot focused heavily on providing a satisfactory customer experience by having expert employees, who could offer advice to customers throughout their projects. Home Depot complimented this with an expansive advertising campaign, which highlighted its vast array of products and services to the friendly and expert service its employees offer.

Business Environment

Home Depot was able to capitalize off of the various political, economical, social, and technological factors. Though case does not provide any political factors that would impact Home Depot; however, at the time the tax code benefitted Home Depot, since “investment tax credits are recorded as a reduction of Federal income taxes n the year the credits are realized” (Case Exhibit 4, Note 1). Home Depot invested significantly in the fiscal year of 1985, as a result of that they should get significant tax credits for the next fiscal year, thereby increasing revenues. The tax rates for fiscal 1983 and 1984 were 46% and 46.2%, but for 1985 the tax rate was 29.3%. The drastic drop in the tax rate could be due to the Federal investment tax credits.

There is one major economical factor that has impacted Home Depot’s markets in Houston. The oil industry and related industries contracted, thereby reducing the incomes of many families. This decreases the disposable income for families, which in turn limits the number of DIY projects families can undertake. Another economic factor that plays to Home Depot’s advantage is the...