Home Depot vs Lowe's: higher ROE, lower return on capital?
In fiscal 2025 Home Depot earned 145.5% on its equity. Lowe’s had negative equity, −$9.9 billion at year end, so its return on equity can’t be calculated at all. Both companies made a profit in every one of the last five years.
So which one earns more on the money it uses? Return on equity can’t answer that here. Below we look at why, then measure both companies on all the capital they put to work, using their annual reports filed with the SEC.
Video: Home Depot vs Lowe’s on YouTube
Two terms first
Equity is what a company owns minus what it owes. It is a number on the balance sheet, not the price of the shares.
Return on equity (ROE) is net income divided by equity. We use the average of the opening and closing equity of each year. A company with $100 of equity and $15 of profit has an ROE of 15%.
A 145.5% ROE means $145.50 of profit for every $100 of equity on the balance sheet. That is not what an investor earns: an investor buys shares at the market price, which is far above that book value.
Home Depot: steady profit, moving equity
All figures in $ billions, fiscal years 2021 to 2025, GAAP.
| Home Depot | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Net income | 16.4 | 17.1 | 15.1 | 14.8 | 14.2 |
| Buybacks (cash spent) | 14.8 | 6.7 | 8.0 | 0.6 | 0.0 |
| Equity, year end | −1.7 | 1.6 | 1.0 | 6.6 | 12.8 |
| Average equity | 0.8 | −0.1 | 1.3 | 3.8 | 9.7 |
| ROE | 2,050.3% | not meaningful | 1,162.2% | 385.4% | 145.5% |
Net income barely moved, but equity did. When a company uses cash to buy back its own shares, its equity goes down by the amount it paid, and buybacks are paid at the market price, not at book value. Home Depot bought back $14.8 billion of shares in 2021 and almost none in 2024 and 2025, so its equity went from below zero back up to $12.8 billion.
ROE swung from 2,050.3% to 145.5% while the business stayed roughly where it was, because it followed the equity.
Lowe’s: profitable every year, equity below zero
| Lowe’s | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Net income | 8.4 | 6.4* | 7.7 | 7.0 | 6.7 |
| Buybacks (cash spent) | 13.0 | 14.1 | 6.1 | 4.1 | 0.2 |
| Equity, year end | −4.8 | −14.3 | −15.1 | −14.2 | −9.9 |
| Average equity | −1.7 | −9.5 | −14.7 | −14.6 | −12.1 |
| ROE | n.m. | n.m. | n.m. | n.m. | n.m. |
* FY2022 includes about $2.5 billion of pre-tax charges related to the sale of Lowe’s Canadian business. n.m. = not meaningful: average equity below zero in every year.
Negative equity does not mean Lowe’s is losing money. On paper, it owes more than it owns. Over the years it paid its owners more, through buybacks and dividends, than all its profits plus the money they first put in. A profit divided by a negative number is not a return, so for Lowe’s, ROE says nothing.
Count all the money put to work
A company doesn’t run only on its owners’ money. It also runs on money it borrows. Invested capital counts both: debt, plus lease liabilities (the rent owed on its stores), plus equity, minus cash. Averages for fiscal 2025, $ billions:
| Average FY2025 | Home Depot | Lowe’s |
|---|---|---|
| Debt | 54.6 | 37.7 |
| Lease liabilities | 9.2 | 4.5 |
| Average equity | 9.7 | −12.1 |
| Minus cash | −1.5 | −1.4 |
| Invested capital | 72.0 | 28.7 |
Buybacks shrink equity, but they don’t shrink invested capital. If a company borrows to buy back shares, its debt rises by the same amount its equity falls. If it pays with cash, its cash falls by the same amount, and since cash is subtracted, the total stays the same.
Return on invested capital
Return on invested capital (ROIC) is operating income after tax divided by average invested capital. Operating income is the profit from running the stores, before interest and tax.
| FY2025 | Home Depot | Lowe’s |
|---|---|---|
| Revenue ($B) | 164.7 | 86.3 |
| Operating income ($B) | 20.9 | 10.2 |
| Operating income after tax ($B, tax rate 23.9% for both) | 15.9 | 7.7 |
| Average invested capital ($B) | 72.0 | 28.7 |
| ROIC | 22.1% | 26.9% |
| ROE | 145.5% | not meaningful |
On all the capital, Lowe’s earns more: $26.90 for every $100 put to work, against $22.10 at Home Depot. ROE pointed the other way because it measured the size of the equity, not the business.
Follow $100 of invested capital
| Per $100 of invested capital, FY2025 | Home Depot | Lowe’s |
|---|---|---|
| Sales | $229 | $300 |
| Costs (goods sold, wages, rent and the rest) | about $200 | about $265 |
| Operating profit | $29.0 | $35.3 |
| Tax | $6.9 | $8.4 |
| Left after tax | $22.1 | $26.9 |
| Left after tax, as % of sales | 9.7% | 9.0% |
The margins are close; Home Depot’s is slightly higher. The difference is sales: every $100 of invested capital produced $300 of sales at Lowe’s and $229 at Home Depot. This is called capital turnover, sales divided by invested capital, and ROIC is margin times turnover. In the last column below, green means higher for Lowe’s and red means lower.
| Metric | Home Depot | Lowe’s | Lowe’s − Home Depot |
|---|---|---|---|
| Operating margin | 12.7% | 11.8% | −0.9 pts |
| After-tax margin | 9.7% | 9.0% | −0.7 pts |
| Sales per $100 of invested capital | $229 | $300 | +$71 |
| ROIC | 22.1% | 26.9% | +4.8 pts |
Tax figures per $100 are rounded so that each column adds up.
Five years of ROIC
| ROIC | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Home Depot | 43.0% | 40.0% | 33.4% | 28.1% | 22.1% |
| Lowe’s | 39.3% | 31.6%* | 37.7% | 33.2% | 26.9% |
* Includes about $2.5 billion of pre-tax charges on the sale of Lowe’s Canadian business. Fiscal 2024 had 53 weeks at Home Depot, fiscal 2022 had 53 weeks at Lowe’s.
Home Depot was ahead in the first two years and Lowe’s in each of the last three. Both fell, Home Depot by 20.9 points and Lowe’s by 12.4; one point means $1 of profit for every $100 of capital. Part of the recent fall comes from acquisitions, which added capital faster than profit: Home Depot bought SRS in 2024 and GMS in 2025, and Lowe’s bought FBM and ADG in 2025.
What the return doesn’t show: debt
Average debt in fiscal 2025 was 1.3 times Lowe’s invested capital and 0.8 times Home Depot’s. More debt means more interest to pay every year, whatever happens to profit. Interest is paid on debt, not on negative equity, but the two usually come together when buybacks are paid for with borrowed money.
Takeaway
ROE moves with buybacks and dividends, because they shrink equity. ROIC doesn’t. When equity is small or negative, read the return on all the capital, over five years, and read it next to the debt.
Methodology
- Period: fiscal year 2025 for both companies (fiscal years ended in early 2026); five-year series FY2021 to FY2025, the same years for both.
- Sources: annual reports (Form 10-K) and earnings releases (Form 8-K) of The Home Depot, Inc. and Lowe’s Companies, Inc., SEC EDGAR. Line items are taken from the filings, not from third-party data vendors.
- ROE = net income / average shareholders’ equity (opening and closing balances). Shown as not meaningful when average equity is negative or close to zero.
- Invested capital = debt (including commercial paper and the current portion) + operating lease liabilities + shareholders’ equity − cash; average of opening and closing balances.
- ROIC = operating income × (1 − effective tax rate) / average invested capital. Effective tax rate FY2025: 23.9% for both. Operating income is not adjusted for the interest part of lease costs, which slightly understates ROIC for both.
- Invested capital includes goodwill and other intangibles from acquisitions, which weigh more on Home Depot after SRS and GMS. A version of ROIC that excludes them answers a different question (how the stores perform, not what the capital earns) and is not shown here.
- Rounding: figures are GAAP and rounded; components may not sum.
- Corrections: if we find an error, we correct it here and say so.
Disclaimer
Educational and informational only. Not investment advice, not a recommendation to buy, sell or hold any security, and not an offer or solicitation. The analysis describes historical, publicly filed data; past results do not indicate future results. Verify against the original filings before relying on them.
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