Turns out that if you take a closer look at the financial statements , there’s a line called “Treasury Stock” and this line is negative., and very negative!
A question we ran across in our research was “What happened to Home Depot’s equity?”.
Except that some great companies also show negative equity, like what just happened to Home Depot ( $HD ). The stock price keeps going up but equity in the company is dropping like a rock.
Why did Home Depot’s sales decline during the quarter?
Fewer people shopped at Home Depot’s stores during the quarter than they did a year ago. And while higher average sales per transaction more than offset this decline in traffic, much of Home Depot’s gains in average ticket were due to higher commodity prices. The slowdown in consumer spending is an industrywide trend.
One source claimed Long story short, the $12.53 per share in profits according to generally accepted accounting principles ( GAAP) that analysts expect Home Depot to earn this year could be the least this company earns. And if that turns out to be the case, Home Depot shares could be turning back up in short order.
This begs the inquiry “How did Home Depot’s debt look like in 2020?”
Home Depot Inc. debt to assets ratio (including operating lease liability) deteriorated from 2019 to 2020 but then improved from 2020 to 2021 exceeding 2019 level. A solvency ratio calculated as EBIT divided by interest payments.
In its fiscal third-quarter 2019 earnings report issued in late November, Home Depot calculated its ROIC for the trailing 12-month period at 45.1%.
Is Joe tenebruso right about Home Depot?
The Motley Fool owns shares of and recommends Home Depot. The Motley Fool has a disclosure policy.
Home Depot did concede that “if the demand environment during the back half of fiscal 2020” — which was “unprecedented” — “were to persist through fiscal 2021, it would imply flat to slightly positive comparable sales growth and operating margin of at least 14 percent.”.
Is negative shareholders’equity bad?
Negative equity is usually bad, but when companies have big buybacks, their Treasury Stock can make total shareholders’ equity go negative. And this is fine.