Ethics and Compliance Paper

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Date Submitted: 09/29/2012 05:55 PM

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To determine the current asset ratio, one will divide the values of current assets by current liabilities. According to Lowe’s annual report for 2008, the total assets as of January 30, 2009 were 9,251 million and 8,686 million for the previous year. The total current liabilities were 8,022 million and 7,751 million respectively (Lowe’s, 2009). The resulting current ration for 2008 is 1.15 times (9,251M/8,022M). This illustrates that Lowe’s has $1.15 in current assets for every $1 of current liability. The current ratio for the previous year of 2007 was very similar at 1.12 times (8,686M/7,751M), resulting in $1.12 in current assets for every $1 of current liability at that time.

The debt ratio determines what percentages of the organization’s assets are financed by debt. The ratio includes both short-term and long-term debt by using the total debt and total assets as reported on the balance sheet of the annual report. In order to determine debt ratio, one will divide the total debt amount by the total assets (Keown, Martin, Petty, & Scott, 2005).

Lowe’s reported a total debt of 14,631 million for 2008 and 14,771 million for 2007. The total assets reported were 32,686 Million in 2008 and 30,869 million in 2007. The resulting debt ratio for 2008 was .447 or 44.7%. The debt ratio for 2007 was .478 or 47.9%. Both of these ratios fall into the normal range because “…companies in general finance about 40 percent of their assets with debt and 60 percent with equity” (Keown et al., 2005, p. 81).

The return on equity (ROE) ratio provides the stockholders’ return on equity capital and level of profitability. ROE determines the profitability by comparing the relative income to the amount of invested assets as well as the amount of debt used to finance the invested assets. For 2007 and 2008, Lowe’s ROE ratios were .17 and .12 respectively. Although Lowe’s return on equity has fallen over 5% in one year, this is not...