Final answer:
Dominion Resources has a higher debt to assets ratio of 0.71 compared to Home Depot's 0.53, indicating more financial risk since a larger portion of its assets is financed by debt.
Step-by-step explanation:
The financial analysis question is that Dominion Resources has more financial risk than Home Depot due to its higher debt to assets ratio. A debt to assets ratio is a financial metric that indicates the proportion of a company's assets that are financed by debt. In this case, Dominion Resources has a ratio of 0.71, meaning 71% of its assets are funded by debt, whereas Home Depot's ratio is 0.53, signifying that 53% of its assets are financed through debt.
A higher debt to assets ratio generally suggests that a company has taken on more debt relative to the value of its assets, implying greater financial leverage. This can lead to increased financial risk, as the company needs to ensure it can meet its debt obligations, and it may face higher interest expenses, reducing its profitability and cash flow. The financial risk is often measured by how much a company relies on debt to finance its operations; thus, the higher the ratio, the greater the risk.
It's important to note that while the ratios provide insight into the level of indebtedness, they don't convey the full picture without considering other factors such as the industry's typical debt levels, interest rates, company earnings stability, and economic conditions. Yet, strictly based on these ratios, Dominion Resources seems to carry more financial risk than Home Depot.