Comments on Barel Karsan: Home Depot vs Lowe's: Return On Equity

Hi Mark,Less debt is certainly safer, but not nece...

2008-10-12T23:56:00.000-04:00

Hi Mark,

Less debt is certainly safer, but not necessarily better. As an example, a utility's operating profit may not fluctuate much even in a recession, and therefore it can use a decent amount of debt safely to finance it's operations, as this drives up returns for equity holders.

For this particular case, one would have to make an assessment of just how cyclical Home Depot is in order to determine the appropriate debt level. One way to judge is to look at their interest coverage ratios right now since these are bad times especially for this industry.

but less debt is better right? especially now

2008-10-11T22:35:00.000-04:00

but less debt is better right? especially now

Hi George,I agree that's an important measure, but...

2008-10-08T14:22:00.000-04:00

Hi George,

I agree that's an important measure, but it's not complete. Shareholders only own the equity portion, so if you only look at returns on invested capital, you ignore returns to shareholders, and don't properly assess whether management uses the right amount of debt.

What's really important here is comparing returns ...

2008-10-08T09:16:00.000-04:00

What's really important here is comparing returns on invested capital.