Example Of Report On Comparing Capital Expenditure: Lowes V/S Home Depot Inc

About the company: Lowes Companies Inc.

Founded in the year 1946, Lowes Companies is a home improvement retailer and also a Fortune 100 home improvement company. The company is the second largest home improvement retailer in the world with revenue figures of $53.40 Billion. The company operates in three geographic regions, US, Canada and Mexico with a total of 1830 stores around the regions. Lowes serves approximately 15 million customers in a week.

Trend in the capital expenditure:

Referring to the annual report of the company, we found that over the period of three years the company has cut down on its capital expenditure to half. Beginning with financial reporting period of 2012, the company made a total capital expenditure of $1829 Million that drove down to $1211 Million in 2013 and then $940 Million during 2014 financial year. The calculations below indicate the % change in the capital expenditure of the company on year-to-year basis:
2013: (1211-1829)/1829= -33.70%
2014: (940-1211)/1211= -22.37%

Factors that lead to change in the capital structure

Referring to the financial statements of the company we found that while capital expenditure of the company was on a declining trend, the shareholder equity was on the same track too. Beginning with the year 2012, the shareholder equity of the company has been declining consistently and now stands at $11853 Million.
The change in the capital structure of the company is attributed toward its decision to curtail the growth in the new store expansion as the same were putting the cannibalization effect on the old store’s sales, and rather use the cash flow for repurchase of the shares and high dividend payouts. The official announcement regarding the same was made in June, 2011 by the CEO Robert Niblock, who declared that the company is planning to cut down on capital expenditure and to buy back $18 billion of its stock. The effect is very much visible on the current capital structure of the company where the shareholder equity has declined significantly over the three year period.

About the company: Home Depot

Founded in the year 1978, Home Depot Inc. is the world’s largest home improvement retailer with a total sales volume of $78.81 Billion. The company operates in three geographic regions, US(including Puerto Rico), Canada and Mexico with total store count of 2263 that sells range of home improvement products, including building materials and lawn and garden products.
Trend in the capital expenditure:
Beginning with 2012, Home Depot Inc. has been increasing its capital expenditure year-by-year. During 2012, the total capital expenditure of the company amounted to $1221 Million that surged to $1312 Million in 2013 and $1389 Million in 2014. The calculations below indicate the % change in the capital expenditure of the company on year-to-year basis:
2012: (1312-1221)/1221= 7.45%
2013: (1389-1312)/1312= 5.86%

Factors that lead to change in the capital structure

Unlike Lowe’s, we witnessed that Home Depot Inc. has been consistently increasing its capital expenditure over the years. In addition, the debt position is increasing with long-term debt surging from $9475 million to $14691 million in 2014, while the equity holding is down from $17777 in 2013 to merely $12522 million.
The related change in the capital structure is attributed to the growth plans of the company where it decided to increase the capital expenditure atleast by $1 billion per fiscal year, both through debt borrowings and reinvestment of cash flow. In addition, the company also planned to take shareholder friendly actions in the form of dividend payouts and share repurchases. Both the actions are very much visible in the latest financial standings as the company has been increasing its capital expenditure and has also spent $3.5 billion on stock repurchases during 2014. Meanwhile, dividends have risen sharply in recent years, with a 20% boost earlier this year following a 35% payout increase in early 2013.

Comparing capital expenditure activity of both the firms

On comparing the capital expenditure of both the firms we found that while Lowe has been decreasing the amount year-by-year, Home Depot Inc. has been adopting an opposite strategy where $1 Billion additional is being spent every year, and the amount is increasing steadily.
The difference in the trend is attributed to the expansion plans of each company. While Lowe realized that new stores are obstructing the sales of the old stores and are thus producing the cannibalization effect, it decided to cut down its capital expenditure and spend the cash flow in share repurchase program. On the other side, Home Depot Inc. plans to increase the capital expenditure amount in order to sustain its leadership in the industry

Works Cited

Annual Report. (n.d.). Retrieved February 21, 2015, from Home Depot Inc: http://phx.corporate-ir.net/phoenix.zhtml?c=63646&p=irol-reportsannual
Annual Reports. (n.d.). Retrieved February 21, 2015, from Lowes: http://phx.corporate-ir.net/phoenix.zhtml?c=95223&p=irol-reportsannual
Caplinger, D. (2014, September 30). How Home Depot Is Investing $1.5 Billion in Its Future. Retrieved February 21, 2015, from The Motley Fool: http://www.fool.com/investing/general/2014/09/30/how-home-depot-is-investing-15-billion-in-its-futu.aspx
Lowe's To Curtail Store Expansion, Pay Shareholders. (n.d.). Retrieved February 21, 2015, from Forbes: http://www.forbes.com/sites/greatspeculations/2011/06/14/lowes-to-curtail-store-expansion-pay-shareholders/