Why is Home Depot's equity negative?
Home Depot's liabilities exceed its assets, which means shareholder equity at the end of 2018 stood in the red with a negative equity of -$1.8 billion. The Home Depot share price has hit a number of all-time highs, partially created in part by management's choice to deplete the company's balance sheet.
Home Depot has a low net debt to EBITDA ratio of only 1.2. And its EBIT covers its interest expense a whopping 17.5 times over. So we're pretty relaxed about its super-conservative use of debt. And we also note warmly that Home Depot grew its EBIT by 18% last year, making its debt load easier to handle.
Home Depot has consistently held this advantage since 2008. The discrepancy can be attributed heavily to higher revenue per square foot. Superior efficiency leads to higher return on assets for Home Depot, and the difference in return on equity is even larger because Lowe's relies far less on debt financing.
Reasons for a company's negative shareholders' equity include accumulated losses over time, large dividend payments that have depleted retained earnings, and excessive debt incurred to cover accumulated losses.
If you owe more on your current auto loan than the vehicle is worth—referred to as being “upside down”—then you have negative equity. In other words, if you tried to sell your vehicle, you wouldn't be able to get what you already owe on it.
Negative shareholder equity
It happens when the company's liabilities exceed its assets, and in more financial terms, the company's incurred losses that are greater than the combined value of payments made to shareholders and accumulated earnings from previous periods.
Home Depot Debt to Equity Ratio: 173.11 for July 31, 2022.
About Return on Equity (TTM)
The Home Depot, Inc.'s return on equity, or ROE, is -3,166.43% compared to the ROE of the Building Products - Retail industry of 29.19%.
If a company has a negative D/E ratio, this means that it has negative shareholder equity. In other words, the company's liabilities exceed its assets. In most cases, this would be considered a sign of high risk and an incentive to seek bankruptcy protection.
Home Depot Debt to Equity Ratio: 173.11 for July 31, 2022.
What is Home Depot's return on equity?
About Return on Equity (TTM)
The Home Depot, Inc.'s return on equity, or ROE, is -3,166.43% compared to the ROE of the Building Products - Retail industry of 29.19%.
Having negative equity in your car could leave you in a tough place if you sell or trade it in, and make it difficult and expensive to get a new ride. Negative equity simply means that you owe more on your car loan than the vehicle is worth — also referred to as being “upside down” on your car loan.
If stockholder equity remains negative for a long time, it faces a significant risk of being unable to pay any of its debts. The business becomes insolvent and is very likely headed for bankruptcy.
