Western Governors University Accounting C251 Capstone Task 2 Home Depot paper

Western Governors University Accounting C251 Capstone Task 2 Home Depot paper Accounting Capstone Task 2: Analysis of Home Depot Western Governors University A. Company Information Template Complete the template for your chosen company based on the 2013 10-K and the 2013 annual report. A1. Company Information Identify the company’s basic information, including each of the following: Company’s name The Home Depot Company’s date of formation The Home Depot was formed in Delaware in 1978. Industry in which the company operates The Home Depot is part of the retail industry, selling building materials and home improvement products. Company’s size in terms of annual sales $78,812,000,000 Company’s size in terms of total assets $40,518,000,000 Company’s size in terms of employees (all full- and part-time) Approximately 365,000 associates were employed at the end of 2013. Company’s size in terms of total market value $106,053,000,000.00 This calculation is based on the outstanding number of shares for the 2013 fiscal year end of 1.38 billion shares and the closing stock price of $76.85 on Jan 31,2014, which is the last closing date before the fiscal year end. Location of company headquarters, including the states and countries in which it operates The Home Depot store headquarters is in Atlanta, Georgia. There was a total of 2,263 stores. 1,977 of these stores were in the United States, which includes stores in all 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands. There were also 180 stores in Canada and 106 stores in Mexico. A2. Customers and Suppliers Identify the company’s top three customers and suppliers. The three-primary type of customers for home Depot are: •Do-it-Yourself Customers: these are customers that buy their own products and complete their own projects. •Do-It-For-Me Customers: these are customers that buy their own products, but have their projects completed by someone else. •Professional Customers: these are customers who professional contractors, remodelers, etc. that buy the products and complete the projects for customers. The Home Depot does not have three top suppliers. Their goal is to offer an assortment of products from and assortment of suppliers. Their stores typically carry 30,000-40,000 different products throughout the year from these suppliers. A3. Financing Identify the company’s sources of financing. The main sources of financing for The Home Depot are: 1.Proceed from Long-Term Borrowing, net of discounts: $5.222 billion 2.Proceeds from sale of Common Stock: $241 million 3.Commercial Papers: allow borrowing up to $2 billion 4.Credit facilities: Collection of banks up to $2 billion dollars as a back-up to commercial papers. 5.Capital Lease: Used to finance portion of real estate. These capital leases have a present value of 14.724 which is the value of the Long-Term Debt and Current Installments on Long-Term Debt from the consolidated balance sheet. A4. Related Parties Identify the company’s related parties, including people and other companies The annual report lists no related parties. A5. Company Life Cycle Identify the current stage in the company’s life cycle. The Home Depot would be in the growth phase. They are passed their introductory phase since they have been in business since 1978. They are not yet in their maturity phase since they are continuing to grow and be profitable, they are also still releasing and developing new products. A6. Risks Identify three risks associated with this business and/or industry. 1.Strong competition could make them have to lower their prices and could also lower their demand in the marketplace. 2.Since The Home Depot relies on third party suppliers if they are unable to create and maintain relationships with a significant number of suppliers it could lower the quality of their products or demand of their products. 3.Disruptions in the supply chain and other issues could have a negative impact on their business. A7. Economic Factors Identify two key economic factors that affect the company and how it stands with respect to these factors. 1. The Home Depot relies a lot on the residential and commercial housing market and their ability to build or renovate homes. If the housing market crashes due to things like foreclosures, unemployment increases and home interest rates then people will not be building, buying or renovating homes which will have a huge impact on their sales. 2. The inflation or deflation of commodity prices would also affect their prices and overall margins. If the tariffs, shipping, customs, etc. increase significantly for their products and they are unable to increase prices in the same manner then it will have a significant impact of the gross profit. A8. Accounting One unique accounting principle that would be relevant to The Home Depot and the retail industry would be related to sales tax. Companies generally know whether to collect sales tax when they are selling from a physical store based on the laws of the state that their store is located in. The issue with sales tax arises with companies like The Home Depot and other business in the retail industry when they not only sell from a physical store, but also online through an eCommerce store. There has been a lot of confusion in the past as to when or not an eCommerce company should collect sales tax. There have been new guidelines and laws put in place so that companies know when they must collect sales tax. The rule used to be that you only had to collect sales tax from states that you had a physical store. There are now other requirements that may require an eCommerce company to have to collect sales tax other than have a physical store, some of these are: economic activity, remote employees, click-through nexus, and affiliate relationships. Since The Home Depot would most likely meet one of these requirements for all states that collect sales tax, they will need to ensure that their website is able to account for and calculate the sales tax on their sales appropriately. If they are not accounting for their sales tax appropriately then there could be huge consequences. For a company as large as The Home Depot that could have to be hundreds of thousands of dollars in sales taxes due and fees and fines incurred from not paying them in the first place. In severe cases your business assets could be seized or you could even be accused of fraud [ CITATION Mik18 l 1033 ]. It is vital for retail companies that also sell online, especially companies as large as The Home Depot to make sure that they are accurately capturing sales tax. A9. Relevant Matters Legal Matter As of the 2013 fiscal year end there was a pending legal proceeding in which The Home Depot had been subpoenaed from the District Attorney of Alameda Country, California which was related to the company’s improper disposal of hazardous materials at its California facilities. The Home Depot is not able to estimate the outcome of the pending allegations, but they do not expect them to have a material effect on the financial position of the company. Regulatory Matter A regulatory matter that The Home Depot would have to worry about and make sure that they are following all laws and regulations would be federal and state employment and labor laws. Since