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Below you will find my Rule Maker Analysis for the 
largest home improvement retailer in the United States,
Home Depot (HD).  The Depot is another example of a 
Merchant King type company, with high asset turnover
and low margins.  Therefore, it doesn't exactly shine
according to the Rule Maker criteria.  It doesn't help
that Home Depot carries a lot of debt (courtesy of 
$1.1 billion in preferred stock) due to recent 
expansion, and a rather high Flowie at 1.71.  On the
positive side, the Depot has almost no short-term debt,
expanding revenues, and rising margins.  However, its
going to take a whole lot more to turn this company
into a Rule Maker.

In doing the analysis, I used Lowe's as its only 
competitor.  According to Hoovers, the other major 
competitors are Menard's and Sears.  Menard's is a 
private company, and I don't think Sears really 
competes in the same market as Home Depot, even though
they may sell the same type goods.  A more comparable
competitor may be Wal-Mart, but because they are much
more diversified than just hardware supplies, I 
decided not to include them in the analysis.

Now on with the numbers:

                   Home Depot                                        Lowe's
                      (HD)                                            (LOW)
                 Current Period Year-ago PeriodYear-over-Year    Current Period  Current Period Current Period
                      1998           1997          Growth             1998           <Date>         <Date>
Income Statement . . .
  Sales                  30,219         24,156      25.1%                 12,245
  Cost of Goods S        21,614         17,375      24.4%                  8,950
  Net Income              1,614          1,160      39.1%                    482
  Shares Outstand         1,547          1,524      1.5%

Balance Sheet . . .
  Cash & Equivale            62            174     -64.4%                    243
  Current Assets          4,933          4,460      10.6%                  2,586
  Short-term Debt            14              8      75.0%                    191
  Current Liabili         2,857          2,456      16.3%                  1,765
  Long-term Debt          1,566          1,303      20.2%                  1,283
                                                                                1              0              0
Margins & Ratios . . .                                                                                         Competitors' Average
  Gross Margins            28.5%          28.1%      0.4                    26.9%                                   26.9%
  Net Margins               5.3%           4.8%      0.5                     3.9%                                    3.9%
  Cash-to-Debt              0.04           0.13    -70.4%                    0.16                                    0.16
  Net Cash               -1518.0        -1137.0      N/A                  -1231.0                                 -1231.0
  Fool Flow Ratio           1.71           1.75     -2.1%                    1.49                                    1.49


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Ranking Rule Makers

1) Brand          Points (0-1)                                  3) Financial Dire Points (0-3)
Familiarity                    1                                Sales Growth                   3
Openness                       1                                Gross Margins                  3
Optimism                       1                                Net Margins                    3
Legitimacy                     1                                Shares Outstandin              2
Inevitability                  1                                Cash-to-Debt                   0
Solitariness                   1                                Fool Flow Ratio                1
Humor                          1                                Expansion Potenti              3
  Subtotal                     7                                  Subtotal                    15

2) Financial Loca Points (0-2)                                  4) Monopoly Statu Points (0-4)
Mass Market Habit              2                                Gross Margins                  2
Gross Margins                  0                                Net Margins                    2
Net Margins                    0                                Net Cash                       0
Cash-to-Debt                   0                                Fool Flow Ratio                0
Fool Flow Ratio                0                                Convenience                    4
Your Interest                  2                                  Subtotal                     8
  Subtotal                     4
                                                                5) Your  Enjoymen              1

                   Total Score               35  Third Tier


As always, post any comments or questions.

the LanceMan
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