# D. R. Horton (DHI) Financial Model Free Excel 3-statement financial model and company analysis for D. R. Horton. - Canonical: https://finamodel.com/companies/d-r-horton - Industry: Construction - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/DHI.xlsx ## Model Purpose This model projects D. R. Horton's financial performance to determine its equity valuation and assess how macroeconomic factors like mortgage rates, housing supply, and construction costs impact home closings and gross margins. ## Company Overview D. R. Horton, Inc. is the largest homebuilding company in the United States by volume, operating across 118 markets in 33 states. The company primarily builds and sells single-family homes designed for entry-level and move-up buyers. Business segments include: * Homebuilding (approx. 90% of revenue) * Rental (approx. 4% of revenue) * Forestar (approx. 4% of revenue) * Financial Services (approx. 2% of revenue) The business model is increasingly asset-light regarding land acquisition, focusing on controlling land through option contracts rather than outright ownership to improve returns on capital. D. R. Horton holds a dominant competitive position, ranking number one in US homebuilding volume since 2002, competing primarily with Lennar, PulteGroup, and NVR. Recent strategic shifts include expanding its single-family and multi-family rental operations and utilising mortgage rate buydowns to maintain sales velocity in a high interest rate environment. ## Revenue Deep Dive ### Homebuilding * Segment name: Homebuilding * Revenue driver formula: Homes Closed x Average Selling Price (ASP) * Historical growth rate: 8-12% CAGR over the last 5 years, driven by volume growth and pandemic-era pricing surges. * Key growth levers and headwinds: Demographic trends (millennial household formation) and structural housing deficits act as levers. High mortgage rates and affordability constraints act as headwinds. * Pricing dynamics: Highly competitive and sensitive to local market conditions. The company frequently uses sales incentives, such as mortgage rate buydowns, which effectively lower the net ASP. * Revenue recognition notes: Recognised at the time of closing when title passes to the buyer. * Seasonality: Spring is the strongest selling season (orders), leading to higher closings and revenue in the fiscal third and fourth quarters (June and September). ### Forestar * Segment name: Forestar * Revenue driver formula: Residential Lots Sold x Average Price per Lot * Historical growth rate: 15-20% CAGR as D. R. Horton expanded this majority-owned lot development subsidiary. * Key growth levers and headwinds: Demand from D. R. Horton (which buys the majority of Forestar's lots) and other builders. Headwinds include land development regulatory delays and capital costs. * Pricing dynamics: Contractual and spot pricing based on local land values. * Revenue recognition notes: Recognised when lots are sold and title transfers. * Seasonality: Generally aligns with homebuilding construction cycles. ### Financial Services * Segment name: Financial Services * Revenue driver formula: Origination Volume x Fee Rate (plus title insurance premiums) * Historical growth rate: 5-10% CAGR, highly correlated with Homebuilding volume. * Key growth levers and headwinds: Capture rate of D. R. Horton homebuyers. Headwinds include rising interest rates reducing overall mortgage demand. * Pricing dynamics: Regulated and highly competitive, tied to secondary mortgage market pricing. * Revenue recognition notes: Recognised when the loan is sold to third-party investors (usually shortly after origination). * Seasonality: Mirrors Homebuilding closings. ### Rental * Segment name: Rental * Revenue driver formula: Number of Rental Communities Sold x Average Price per Community * Historical growth rate: Highly variable (lumpy) as this is a newer, rapidly growing segment. * Key growth levers and headwinds: Institutional demand for single-family rental (SFR) and multi-family portfolios. Headwinds include higher cap rates reducing asset values. * Pricing dynamics: Spot pricing based on prevailing commercial real estate cap rates. * Revenue recognition notes: Recognised upon the bulk sale of a completed and leased community. * Seasonality: Unpredictable, driven by transaction timing rather than seasonal consumer behaviour. ## Cost Structure ### Variable Costs / COGS * Line-by-line breakdown: Land and lot costs, direct construction costs (materials and labour), capitalised interest, and warranty reserves. * Gross margin range: 20% to 29% over the last 5 years (peaked during the pandemic, normalising towards 22-24%). * Key input costs and commodity exposures: Lumber, concrete, copper, and skilled trade labour. * How COGS scales with revenue: Highly linear with volume, though material costs can create margin compression if ASPs do not rise concurrently. ### Operating Expenses * R&D: Not applicable or material for homebuilders. * SG&A: Broken down into selling expenses (commissions, model home costs, advertising) and general and administrative expenses. SG&A is highly efficient, typically running at 7.0% to 7.5% of homebuilding revenue. * Depreciation & Amortisation: Very low (typically under 1% of revenue) as the business is not PP&E intensive. * Stock-Based Compensation: Minimal impact compared to tech companies, typically less than 0.5% of revenue. * Restructuring / one-time charges: Rare, usually only occurring during severe housing downturns (e.g., inventory impairments). ### Margin Profile * Gross margin: 22-25% (normalised). * EBITDA margin: 16-20%. * Operating margin: 15-19%. * Net margin: 12-15%. * Margin trend: Compressing slightly from pandemic highs due to increased use of mortgage rate buydowns (which hit revenue/gross margin) and sticky construction costs. ## Balance Sheet Structure * Total assets: Approximately $33 billion to $35 billion. * Key asset categories: Inventory is the dominant asset (typically 60-70% of total assets), comprising land, lots under development, homes under construction, and completed unsold homes. * Goodwill & intangibles as % of total assets: Less than 1% (growth is primarily organic). * Working capital profile: * Days Sales Outstanding (DSO): Very low (under 10 days), as homes are paid for at closing via mortgages. * Days Inventory Outstanding (DIO): High (200-250 days), reflecting the time required to develop land and build homes. * Days Payable Outstanding (DPO): 30-45 days. * Net working capital as % of revenue: High, typically 40-50%, driven by inventory. * Is working capital positive or negative?: Positive. The company must invest heavily in inventory to fund growth. * PP&E: Minimal (corporate offices, model home furnishings). * Right-of-use assets / operating leases: Material but not dominant, primarily for office space and some equipment. ## Capital Expenditure & Investment * Capex as % of revenue: Less than 1%. Homebuilders invest in inventory (operating cash flow), not PP&E (investing cash flow). * Maintenance capex vs. growth capex: Almost entirely maintenance for corporate infrastructure. * Major capex programmes underway or planned: None material. * Capitalised software / development costs: Minimal. * M&A pattern: Historically a bolt-on acquirer of local private builders to enter new markets, but currently focused on organic growth. * Typical acquisition multiple paid: 1.0x to 1.5x book value for private builders. ## Debt & Capital Structure * Total debt: Approximately $5 billion to $6 billion. * Debt/EBITDA ratio: Very low, typically 0.5x to 1.0x. * Credit rating: Investment grade (Baa2/BBB+). * Key debt instruments: Senior unsecured notes and a revolving credit facility. * Maturity profile: Well-laddered with average maturities exceeding 4 years. * Interest rate profile: Predominantly fixed-rate senior notes. * Covenants: Standard leverage and interest coverage covenants, with massive headroom. * Share repurchase programme: Highly active, typically repurchasing 2-4% of outstanding shares annually. * Dividend policy: Modest yield (approx. 1%), but growing rapidly with a low payout ratio (10-15%). ## Cash Flow Characteristics * Operating cash flow conversion: Highly variable. During high growth, OCF can be lower than Net Income due to massive inventory investments. In steady-state or mild declines, OCF significantly exceeds Net Income as inventory liquidates. * Free cash flow margin: 5-10%, heavily dependent on the rate of inventory growth. * Major non-cash items: Deferred taxes, stock-based compensation, and equity in earnings of unconsolidated entities. * Working capital cash flow impact: Inventory is a massive use of cash during expansion phases. * Capex intensity: Extremely low. * Cash tax rate vs. GAAP effective tax rate: Closely aligned, typically around 23-24%. ## Sheet Structure 1. **Assumptions**: Hardcoded inputs for macroeconomic drivers, segment growth, ASPs, margins, and capital returns. 2. **Scenarios**: Scenario manager for Base, Bull, and Bear cases (driven by mortgage rate and housing start assumptions). 3. **Homebuilding Build-up**: Backlog roll-forward, net orders, cancellation rates, closings, ASP, and Homebuilding gross margin calculations. 4. **Forestar Build-up**: Lot sales, ASP per lot, and Forestar segment margins. 5. **Rental & FinServ Build-up**: Rental community sales, mortgage origination volumes, and segment margins. 6. **Income Statement**: Consolidated P&L mirroring the 10-K, with revenues and costs of sales broken out by the four segments. 7. **Balance Sheet**: Assets, Liabilities, and Equity, highlighting Inventory (Land vs. WIP) and Debt. 8. **Cash Flow Statement**: Indirect method, explicitly linking inventory changes from the Balance Sheet. 9. **Debt Schedule**: Tranche-by-tranche debt roll-forward, interest expense calculation, and capitalised interest tracking. 10. **Valuation**: DCF using unlevered free cash flow, and a comparable company analysis (P/E and P/B multiples). ## Key Financial Relationships 1. Ending Backlog (Units) = Beginning Backlog + Net Orders - Homes Closed 2. Homebuilding Revenue = Homes Closed x Average Selling Price (ASP) 3. Homebuilding Gross Profit = Homebuilding Revenue - Homebuilding Cost of Sales 4. Cancellation Rate = Cancelled Orders / Gross Orders 5. Forestar Revenue = Lots Sold x Average Price per Lot 6. Financial Services Revenue = Homes Closed x Capture Rate x Average Loan Value x Origination Fee % 7. Rental Revenue = Single-Family Communities Sold x Price per Community + Multi-Family Communities Sold x Price per Community 8. Total SG&A = Homebuilding Revenue x SG&A % 9. Capitalised Interest Amortisation = Homes Closed x Average Capitalised Interest per Home 10. Ending Inventory = Beginning Inventory + Land Purchases + Construction Spend - Homebuilding Cost of Sales 11. Non-Controlling Interest Expense = Forestar Net Income x (1 - DHI Ownership %) 12. Share Count = Beginning Shares - (Share Repurchase Spend / Average Share Price) ## Cross-Sheet Dependencies * The **Homebuilding Build-up** sheet feeds Homebuilding Revenue and COGS to the **Income Statement**. * The **Homebuilding Build-up** also drives the Inventory roll-forward on the **Balance Sheet**. * The **Income Statement** generates Net Income, which starts the **Cash Flow Statement**. * Changes in Inventory on the **Balance Sheet** flow directly into Operating Cash Flow on the **Cash Flow Statement**. * The **Cash Flow Statement** determines cash available for debt paydown or share repurchases, feeding the **Debt Schedule** and **Assumptions** (share count). * Interest expense from the **Debt Schedule** feeds back into the **Income Statement** (creating a potential circularity if interest is paid from a revolver, though DHI rarely draws its revolver). ## Sign Convention * Revenues and income items are positive. * Expenses (COGS, SG&A, Interest, Taxes) are negative in the Income Statement build. * Assets are positive; Liabilities and Equity are positive. * In the Cash Flow Statement, cash inflows are positive, and cash outflows (including increases in assets like inventory) are negative. ## Things Most Likely to Go Wrong * Failing to account for capitalised interest. Homebuilders capitalise interest into inventory and expense it through COGS when the home closes. This creates a timing difference between cash interest paid and interest expense on the P&L. * Mismodelling the Forestar non-controlling interest. D. R. Horton owns approximately 63% of Forestar, so 37% of Forestar's net income must be deducted below the operating line to reach Net Income Attributable to D. R. Horton. * Treating Rental segment revenue as smooth. Rental community sales are highly lumpy; straight-lining this revenue will produce inaccurate quarterly forecasts. * Ignoring the impact of mortgage rate buydowns. These incentives reduce the reported ASP and directly compress gross margins. * Misunderstanding cash flow drivers. For homebuilders, OCF is almost entirely dictated by inventory growth or liquidation, not just net income. * Applying standard corporate capex assumptions. Homebuilders have negligible capex; their capital goes into inventory. * Using statutory tax rates instead of effective rates, which benefit from energy-efficient home tax credits (Section 45L). * Failing to link Financial Services revenue to Homebuilding volume. The two are inextricably linked via the capture rate. ## Validation Checks * Homebuilding Gross Margin should remain between 20% and 25%; flag if it falls outside this historical band. * SG&A as a % of Homebuilding Revenue should be between 7.0% and 7.5%. D. R. Horton is the low-cost leader; higher figures indicate a modelling error. * Debt to Total Capital ratio should remain below 30% based on current management policy. * Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period. * Cancellation rates should typically range between 15% and 25%; flag if they exceed 30% (indicates severe housing recession). * Inventory turnover (Homebuilding COGS / Average Inventory) should be approximately 1.0x to 1.5x. * Effective tax rate should be 23-24%, reflecting standard corporate rates minus energy efficiency credits. * Forestar minority interest deduction must equal approximately 37% of Forestar's standalone net income. ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | Homebuilding Net Orders Growth | 3.0 | % | Reflects modest volume growth in a supply-constrained market. | | Average Selling Price (ASP) | 380,000 | USD | Based on recent FY23/FY24 reported figures, reflecting rate buydown impacts. | | Homebuilding Gross Margin | 23.5 | % | Normalising from pandemic highs, but supported by lower lumber costs. | | SG&A as % of Homebuilding Rev | 7.3 | % | Consistent with historical efficiency metrics. | | Forestar Revenue Growth | 5.0 | % | Steady lot demand from DHI and third parties. | | Forestar Gross Margin | 20.0 | % | Historical average for the lot development business. | | Financial Services Capture Rate | 65.0 | % | Percentage of DHI buyers using DHI Mortgage. | | Rental Segment Revenue | 1,200 | USDm | Based on recent annual run-rate for community sales. | | Effective Tax Rate | 23.5 | % | Statutory rate adjusted for state taxes and 45L energy credits. | | Annual Share Repurchases | 1,500 | USDm | Management's recent capital return run-rate. | | Dividend per Share | 1.20 | USD | Based on recent quarterly declarations ($0.30/quarter). | | Cost of Debt | 4.5 | % | Weighted average interest rate on existing senior notes. | | WACC | 9.5 | % | Standard discount rate for homebuilders given cyclicality. | | Terminal Growth Rate | 2.0 | % | Long-term inflation and GDP growth proxy. | ## Data Sources & Benchmarks * SEC EDGAR: D. R. Horton (DHI) 10-K and 10-Q filings. * Investor Relations: D. R. Horton investor presentations for segment-level operating metrics and backlog data. * Key Peers for Benchmarking: Lennar (LEN), PulteGroup (PHM), NVR Inc. (NVR), Toll Brothers (TOL). * Industry Data Sources: US Census Bureau (New Residential Sales, Housing Starts), National Association of Home Builders (NAHB) Housing Market Index, Freddie Mac Primary Mortgage Market Survey. * Consensus Estimates: FactSet or Bloomberg for forward-looking EPS and revenue estimates. ## Sources * D. R. Horton, Inc. Form 10-K for the fiscal year ended September 30, 2023. * D. R. Horton, Inc. Form 10-Q for the most recent fiscal quarters. * D. R. Horton Investor Relations website and quarterly earnings call transcripts. * Forestar Group Inc. (FOR) SEC filings (for cross-referencing segment data). --- ## Frequently asked questions ### What does D. R. Horton do? D. R. Horton, Inc. is the largest homebuilding company in the United States, operating in 118 markets across 33 states. The company primarily builds and sells single-family homes designed for entry-level and move-up buyers, with homebuilding accounting for approximately 90% of its revenue. ### What drives D. R. Horton's revenue growth? D. R. Horton's revenue is primarily driven by the volume of home closings and the average selling price of its single-family homes. Macroeconomic factors such as mortgage rates, housing supply, and construction costs significantly impact these drivers and are assessed in the financial model. ### What is D. R. Horton's capital expenditure strategy? D. R. Horton's capital expenditure is minimal, typically less than 1% of revenue, as homebuilders primarily invest in inventory rather than property, plant, and equipment. This capex is almost entirely for maintenance of corporate infrastructure, with no major programs currently underway. ### What is D. R. Horton's working capital profile? D. R. Horton maintains a positive net working capital profile, typically 40-50% of revenue, largely driven by its significant investment in inventory. Inventory, comprising land, lots under development, and homes under construction, is the dominant asset on its balance sheet. ### Can I download an Excel financial model for D. R. Horton? Yes, a downloadable Excel financial model for D. R. Horton is available. This model projects the company's financial performance from FY2026 to FY2030 and helps assess the impact of macroeconomic factors on its operations and valuation. ### How does D. R. Horton manage land acquisition? D. R. Horton employs an increasingly asset-light strategy for land acquisition, focusing on controlling land through option contracts rather than outright ownership. This approach aims to improve returns on capital by reducing the amount of owned land on its balance sheet. 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