Home Depot opened in 1978 and catered to individual homeowners and small businesses, and sales were concentrated in the home improvement market. They have focused on catering to a growing do-it-yourself market for homeowners looking to increase the value of their homes. One of the key factors to their success was that their stores were also their warehouses, which allowed them to keep overhead costs low and offer affordable prices to customers. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get Original Essay Emphasizing increased sales with lower profits and inventory turnover also allowed them to reduce costs. About 90% of the company's employees worked full time and received higher wages and salaries than competitors. Key risk factors include reliance on external debt and equity financing. When their earnings and stock price collapsed in 1985, they became a less attractive investment. Their goal was to generate more money from the stores to provide a sustainable way to grow their business. The home improvement industry had sales of approximately $80 billion in 1985, and the industry had seen annual growth of 14 percent for the previous 15 years. Growth has been supported by the increase in two-earner households, as well as the rise in popularity of DIY businesses. Home Depot's success brought competition to the industry, and the largest was Hechinger Co., which owned hardware stores before entering the home improvement industry. Hechinger's model was to operate luxury stores and provide higher quality products with the goal of generating higher profits. While Home Depot has more total sales and a larger percentage of market share than Hechinger, their competitor has a higher ROA and ROE than them for fiscal 1985. Their difficulties are partly due to the aggressive rate of growth undertaken during the year. From the end of fiscal 1984 through the end of fiscal 1985, they expanded into 8 new markets and increased the total number of stores from 22 to 50. The percentage increase in operating expenses, approximately 80 percent, exceeded the percentage growth in revenue in recent years. new stores supplied, 62%. Another key to their performance was the reduction in Home Depot's gross profit margin. The percentage went from 26.4% to 25.9%, largely due to the lower margins linked to the presence in new markets. To finance the new stores that Home Depot deemed necessary to gain an edge over the competition, Home Depot entered into a $200 million revolving credit agreement. This increase in long-term debt negatively impacts share prices and shareholder returns in the short term, but should enable them to maintain growth prospects into the future. This allowed them to cover the approximate cost of $8.4 million per store needed to finance the new stores. The heavy reliance on external debt and equity financing and the resulting decline in the share price made investors less interested in the company, forcing them to wonder how they could finance further expansion in the future. Please note: this is just a sample. Get a custom paper from our expert writers now. Get a Custom Essay One of the areas that Home Depot should look to improve in the future is how to increase inventory turnover. They can do this by focusing on how to improve the way they manage inventory levels. The company's expansion brought them.