Financial Modeling analysis - Essay Example

Another assumption is progressive growth in sales for the existing stores. As reflected in the financial forecast account, Lowe’s will make increasing sales for the first years, drop the pick-up and maintain a continuous growth of sales till the fifth year. Since the company will bring new products to metropolitan dweller, it will make more sales within the two year. In the third year, 2003, Lowe’s will try to adjust for the long-term investment decision hence leading to drop in sale. However, after adjusting its resources effectively, it will pick up and its sale will be expected to progressively grow.

Lowe’s is planning to reach more professional customer using its online website. This means it will be collecting cash instantly thus as reflected by the high receivable turnover rates. In addition to that, it is assumed that Lowe’s will need huge financing if they have a goal of reaching metropolitan markets. In assuming a high receivable turnover rate, the company will minimize debtor ratio and will therefore have more cash at hand for the investment purpose. In addition to that, the model assumes a more that 100% inventory and P&E turn over.

Though such a turnover rate may seem unachievable, it is important to set it so that Lowe’s can achieve its goal of competing with Home Depot. The model finally assumes a constant rate in “other current liabilities / sale” entity. For the company to be able to plan working capital, they need to have a rate that does not change. Financial forecast model developed by Value Line Publishing shows a higher 5 year average gross margin of approximately 30.52% as compared to Lowe’s model whose 5 year average gross margin is 29.3%. this simply means that VLP’s model is focused in seeing Home Depot to make more earning for every dollar it spend is sales while Lowe’s modes is focused to seeing