Lowe's Companies (NYSE: LOW) is one of the two largest home improvement retailers in the United States, with more than 1,800 retail locations in North America and an April 2016 market cap of $70 billion. Lowe's operates with significant financial leverage, with a debt-to-total-capital ratio of 0.62 as of January 2016. With total debt trending upward and total shareholder equity trending downward, the company's financial leverage has been increasing, though it is still more equity-intensive than its closest peer, The Home Depot Inc. (NYSE: HD).

Capital Structure

A firm's capital structure is the manner in which it finances operations, with debt and equity being the two sources of funding. Equity financing is the sum of common stock, preferred stock and retained earnings, and is equal to book value. Debt financing includes a broad set of long-term and short-term debt items. Analyst and investor definitions of debt financing are not universal, but bonds and notes payable are commonly used as the debt portion of capital structure. Other liabilities and operating leases are sometimes included in wider interpretations.

Equity Capital

For the year ended January 2016, Lowe's had $455 million of common stock outstanding at 50 cents par value. The value of outstanding common stock was $480 million at the fiscal year ended 2015 and $515 million in 2014. Lowe's had retained earnings of $7.6 billion as of January 2016, down from $9.6 billion and $11.4 billion in the prior two years. Accumulated other comprehensive loss, defined as net earnings adjusted for foreign currency losses, were $394 million in 2016, $103 million in 2015 and $17 million in 2014. Lowe's had total shareholder equity of $7.7 billion as of January 2016, down from $10 billion and $11.9 billion over the preceding years.

Retained earnings have been the most variable component of Lowe's equity capital, and this is common among large firms. Though the company has consistently delivered net profits throughout recent years, retained earnings have declined as the company aggressively returns capital to shareholders through cash dividends and repurchase of common stock. Lowe's paid $991 million in cash dividends over the year ended January 2016, after paying $858 million the prior year. Share repurchase activity has been more significant, with $3.9 billion of repurchases in each year.

Debt Capital

Lowe's has taken on increasing amounts of debt in the years leading up to April 2016. For the fiscal year ended January 2016, Lowe's held $11.5 billion in long-term debt and $1.06 billion of current maturities of long-term debt. This represents a material increase from the $10.8 billion of long-term debt and the $552 million of current maturities of long-term debt held in 2015 and the $10.1 billion of long-term debt and $435 million of current maturities in 2014. The vast majority of Lowe's long-term debt is comprised of unsecured notes with interest rates ranging from 3.13 to 6.76% and maturity dates ranging from fiscal 2020 to 2045.

Rising debt liabilities have accompanied increasing financial leverage as Lowe's has relied proportionately more on debt financing amid low interest rates. The company's debt-to-total-capital ratio was 0.62 in January 2016, up from 0.53 in 2015 and 0.47 in 2014. Though Lowe's had had rising financial leverage, it is still more heavily financed by equity than its closest competitor, Home Depot, which had a debt-to-total-capital ratio of 0.77 as of January 2016.

Enterprise Value

Enterprise value (EV) is a comprehensive measure of a company's total value based on the market value of both debt and equity financing. It is calculated by adding up the market values of common equity, debt, minority interest, preferred equity less cash, cash equivalents and investments. Unfunded pension liabilities are sometimes included in the calculation of enterprise value as well. The metric is useful in the calculation of acquisition valuation, and it can also be important for comparing companies with disparate capital structures. As of April 2016, Lowe's had an enterprise value of $81.3 billion, according to Ycharts. Lowe's EV increased steadily throughout 2013 and 2014 as the U.S. equity market gained strength before experiencing mixed results in 2015. Between March 2015 and April 2016, the company's EV ranged from $70.3 billion to $83 billion.