Home Depot opened in 1978 and targeted individual homeowners and small businesses, and sales were concentrated in the home improvement market. They focused on creating a growing DIY market for homeowners looking to increase the value of their homes. One of their main success factors was that their stores were also their warehouses, allowing 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 Should Not Be Banned”? Get an Original Essay Focusing on higher 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 salaries than their competitors. Their main risk factors include their dependence on external debt and equity financing. When their profits and stock prices fell in 1985, they became a less attractive investment. Their goal was to generate more cash flow from their stores to provide a sustainable way to grow their business. The home improvement industry had sales of approximately $80 billion in 1985, and the sector experienced annual growth of 14 percent over the preceding 15 years. This growth has been supported by the increase in the number of two-earner households, as well as the growing popularity of DIY activities. Home Depot's success brought competition to the industry, and the largest company was Hechinger Co., which owned hardware stores before moving into the home improvement industry. Hechinger's model was to run high-end stores and provide higher quality products with the goal of generating higher profits. While Home Depot has more total sales and a greater percentage of market share than Hechinger, its competitor has a higher ROA and ROE than them for fiscal 1985. Their difficulties are partly due to the growth rate aggressive approach that they undertook during the year. From the end of fiscal 1984 to the end of fiscal 1985, they expanded into 8 new markets and increased their total number of stores from 22 to 50. The percentage increase in operating expenses, approximately 80%, exceeded the latter's revenue growth percentage. new stores supplied, 62%. Another key to their performance was the reduction in Home Depot's gross profit margin. They went from 26.4% to 25.9%, which is mainly explained by the drop in margins linked to the establishment in new markets. To finance the new stores Home Depot believed it needed to get a leg up on the competition, Home Depot entered into a $200 million revolving credit agreement. This increase in long-term debt hurts their stock price and shareholder returns in the short term, but should allow them to maintain their growth prospects going forward. This allowed them to cover the approximate $8.4 million per store cost they would need to finance their new stores. The heavy reliance on external debt and equity financing and the subsequent decline in stock prices made investors less interested in the company, and they wondered how they could finance future expansion. Keep in mind: this is just a sample. Get a personalized article from our editors now..