Value Line Publishing: October 2002 Case
How sensitive is return on capital to the forecast assumptions in case Exhibit 8? What independent changes in Carrie Galeotafiore’s estimates are required to drive the 2002 return-on-capital estimate below Home Depot’s cost-of-capital estimate of 12.3%? Look specifically at gross margin, cash operating expenses, receivable turnover, inventory turnover, and P&E turnover. What effect does sales growth have on return on capital? Explain your findings.