Home Depot Financial Income Statement - Essay Example

Since the main purpose of business is to generate profits from its operations, the income statement is very important since it helps to show if the organization is in a position to achieve its goals. This helps the responsible authorities to make meaningful decisions that can help to improve the operations of the organization in the event that it has been recording losses. Decisions such as scaling down the operations of business if it has been making losses can be made using its income statement.

On the other hand, a business can expand its operations if it has been operating profitably over a give n accounting period. For instance, the income statement of Home Depot’s Annual Report (2008, p. 18) shows that “Net Sales for fiscal 2008 decreased 7.8% to $71.3 billion from $77.3 billion for fiscal 2007.” On the other, “Gross Profit decreased 7.7% to $24.0 billion for fiscal 2008 from $26.0 billion for fiscal 2007 while operating expenses increased 4.7% to $17.8 billion for fiscal 2008 from $17.

1 billion for fiscal 2007.” These statistics point a negative picture in the operations of the company and this is the reason why a decision to close underperforming stores during the first quarter of 2008 was made. Instead of making profits, the company has been recording losses in its operations. 2. The balance sheet of the company speaks volumes about its stock. The balance sheet of the company is mainly comprised of assets, liabilities as well as equity (Investopedia, 2014). The assets show things that are of value to the company and they can be converted into cash at any given period.

On the other hand liabilities show what the company owes to others while equities represent earnings contributed by shareholders. A company’s balance sheet shows if the company is able to sustain its operations through creating a fine balance between what belongs to it and what it owes to others. In actual fact, a balance sheet is very important in