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Financial Analysis Paper for Target

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Financial Analysis Paper Zeyuan Liu Company Profile Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota. Target Corporation operates general merchandise and food discount stores in the United States. It operates as two reportable segments: Retail and Credit Card. The company offers household essentials, including electronics, music, and toys; apparel and accessories; home furnishings as well as seasonal merchandise. It also sells its merchandise under private-label brands, such as Archer Farms, etc.

Target Corporation operates in-store amenities, such as Target Cafeand Target Clinic as well.

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Its marketing strategy includes selling its products on its online shopping site Target. com and its network of distribution centers. As of June 2, 2010, it operated 1,740 stores in 49 states and the District of Columbia covering 231,941,000 square feet, and has more than 351,000 employees across the United States. Target Corporation’s main competitors are Wal-Mart Stores Inc. (WMT), and Costco Wholesale Corporation (COST).

According to its 10-K annual SEC filing, 88% of shares are held by institutional and mutual fund owners.

The five largest shareholders of Target Corporation are Gregg W. Steinhafel, Kathryn A. Tesija, Douglas A. Scovanner, Richard M. Kovacevich and John D. Griffith. Segment Performance Target operates as two reportable segments: Retail and Credit Card segments. According to Target’s 10-K annual SEC filing, Target Corporation’s retail segment contains service of merchandising operations, and associate with online services.

Its credit card segment gives qualified clients credit cards, such as Target Visa and the Target Card. According to Target’s 2009 annual report, the “performance in our Retail Segment was remarkable, as the segment generated the highest EBIT in the Corporation’s history. In the Credit Card Segment, disciplined management led to a 29. 4 percent increase in segment profit. ” This is a very positive signal to its shareholders. Currently all of Target Corporation’s revenues are generated in the United States, and its long-lived assets are primarily located in America.

Financial Performance ? Profitability According to the ratio analysis, Target Corporation shows a very competitive profitability, given its comparatively higher EPS, ROE and ROA. Almost all the numbers exceed the average for its industry. Although from 2007 to 2008, the profit margin on sales dropped because of the financial crisis, it boomed in 2009. And the EPS is $3. 64, a little smaller than its competitor Wal-Mart’s $3. 92. ? Liquidity According to Target’s annual report, the cash provided by operations was $5,881 million in fiscal year 2009, and its current ratio is 1. 3. This means the current assets of the company were more than the current liabilities and shows a positive signal. Cash flow is very important for merchandising company like Target. The acid ratio also shows total quick assets are more than half of its current assets, which means its assets are safe. ? Asset management The turnover ratio gives an indication of the company’s ability to move its merchandise. The number shows Target Corporation sells its products very quickly, with an inventory turnover of 6. 03 times in 2009.

Holding fewer inventories on hand can keep more cash on hand in case of extraordinary incident happens. ? Solvency Target faces a moderate risk because 66% of its total assets are financed with debt. Target’s cash debt coverage ratio is 0. 18 times which means it is able to pay 18% of its liabilities with its cash during the fiscal year. The good thing is that it holds a larger amount of free cash flow (FCF) in 2009 than 2008, which shows a positive recovery. Summary In conclusion, Target Corporation’s strength is it has a strong profit capability, given the high EPS, ROE and ROA.

From the 10-K filling, we can see that the revenue and earnings of Target increased from 2007 to 2009, so we can expect it will keep growing in fiscal 2010. Because of the financial stimulus policy aimed at fostering a broader economic recovery, the merchandising industry shows significant potential for growth in the aftermath of the financial crisis. As discussed earlier, the liquidity and solvency ratios show that, although Target holds large amounts of free cash flow to deal with risk and possible acquisition, it still has a high debt to asset ratio. Appendix A Ratio Analysis

Profitability ratio Earnings Per Share Book Value per Share Profit margin on sales Return on assets Return on shareholders’ equity Return on Investment: DuPont Model (ROI) Liquidity Ratio Current ratio Quick ratio (acid test) Working Capital 2009 2008 2007 $3. 64 $21. 16 4. 26% 6. 24% 16. 56% 6. 02% $1. 36 $18. 73 3. 14% 5. 16% 14. 27% 4. 37% $2. 87 $19. 89 4. 87% 6. 27% 15. 58% 5. 78% 2009 1. 63 0. 77 $7,097 2009 2. 61times 6. 03times 9. 67times 9. 87times 1. 52times 2009 0. 66 1. 93 0. 18 $2,200 2008 1. 66 0. 82 $6,976 2008 2. 43times 5. 89times 8. 83times 8. 64times 1. 8times 2008 0. 69 2. 22 0. 15 $864 2007 1. 42 0. 78 $7,193 2007 2. 56times 6. 27times 9. 34times 8. 86times 1. 47times 2007 0. 67 1. 82 0. 16 $2,450 Asset Management Fixed Assets Turnover Inventory Turnover Accounts Receivables Turnover Receivables Turnover Ratio Total Assets Turnover Solvency Total Debt to Asset Ratio Total Debt to Equity Ratio Cash Debt Coverage Ratio Free Cash Flow (Millions) Appendix B Analysis of Results of Operations Retail Segment Retail Segment Results (millions) Sales Cost of sales Gross margin SG&A expenses (a) EBITDA Depreciation and amortization EBIT $ $ 009 63,435 44,062 19,373 12,989 6,384 2,008 4,376 $ $ 2008 62,884 44,157 18,727 12,838 5,889 1,808 4,081 $ $ 2007 61,471 42,929 18,542 12,557 5,985 1,643 4,342 Percent Change 2009/2008 0. 9% (0. 2) 3. 5 1. 2 8. 4 11. 0 7. 3% 2008/2007 2. 3% 2. 9 1. 0 2. 2 (1. 6) 10. 1 (6. 0)% Credit Card Segment Results Credit Card Segment Results Amount 2009 2008 2007 Amount Rate (d) (in millions) Rate (d) Amount (in millions) Rate (d) (in millions) Finance charge revenue Late fees and other revenue Third party merchant fees 123 1. 5 152 1. 7 166 2. 3 349 4. 2 461 5. 3 422 5. $ 1,450 17. 4% $ 1,451 16. 7% $ 1,308 18. 0% Total revenues 1,922 23. 0 2,064 23. 7 1,896 26. 1 Bad debt expense Operations and marketing expenses (a) Depreciation and amortization 1,185 14. 2 1,251 14. 4 481 6. 6 425 5. 1 474 5. 4 469 6. 4 14 0. 2 17 0. 2 16 0. 2 Total expenses 1,624 19. 4 1,742 20. 0 966 13. 3 EBIT Interest expense on nonrecourse debt collateralized by credit card receivables 298 3. 5 322 3. 7 930 12. 8 97 167 133 Segment profit $ 201 $ 155 $ 797 Average receivables funded by Target (b) Segment pretax ROIC (c) 7. 0% 3. 7% 16. 3% $ 2,866 $ 4,192 $ 4,888

Segment Reporting 2009 Business Segment Results (millions) Retail Credit Card Total Retail Credit Card Total Retail Credit Card Total 2008 2007 Sales/Credit card revenues Cost of sales Bad debt expense (a) Selling, general and administrative/ Operations and marketing expenses (a) (b) Depreciation and amortization 2,008 14 2,023 1,808 17 1,826 1,643 16 1,659 12,989 425 13,414 12,838 474 13,312 12,557 469 13,026 — 1,185 1,185 — 1,251 1,251 — 481 481 $ 63,435 44,062 $ 1,922 — $ 65,357 44,062 $ 62,884 44,157 $ 2,064 — $ 64,948 44,157 $ 61,471 42,929 $ 1,896 — $ 63,367 42,929

Earnings before interest expense and income taxes Interest expense on nonrecourse debt collateralized by credit card receivables — 97 97 — 167 167 — 133 133 4,376 298 4,673 4,081 322 4,402 4,342 930 5,272 Segment profit Unallocated (income)/expens e: Other interest expense Interest income $ 4,376 $ 201 $ 4,576 $ 4,081 $ 155 $ 4,236 $ 4,342 $ 797 $ 5,139 707 727 535 (3) (28) (21) Earnings before income taxes $ 3,872 $ 3,536 $ 4,625 Appendix B Financial Statements

Consolidated Statements of Operations (millions, except per share data) Sales Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses Credit card expenses Depreciation and amortization Earnings before interest expense and income taxes Net interest expense Nonrecourse debt collateralized by credit card receivables Other interest expense Interest income Net interest expense Earnings before income taxes Provision for income taxes Net earnings Basic earnings per share Diluted earnings per share Weighted average common shares outstanding Basic Diluted 752. 754. 8 770. 4 773. 6 845. 4 850. 8 $ $ $ 97 707 (3) 801 3,872 1,384 2,488 3. 31 3. 30 $ $ $ 167 727 (28) 866 3,536 1,322 2,214 2. 87 2. 86 $ $ $ 133 535 (21) 647 4,625 1,776 2,849 3. 37 3. 33 $ 2009 63,435 1,922 65,357 44,062 13,078 1,521 2,023 4,673 $ 2008 62,884 2,064 64,948 44,157 12,954 1,609 1,826 4,402 $ 2007 61,471 1,896 63,367 42,929 12,670 837 1,659 5,272

Consolidated Statements of Financial Position January 30, (millions, except footnotes) Assets Cash and cash equivalents, including marketable securities of $1,617 and $302 Credit card receivables, net of allowance of $1,016 and $1,010 Inventory Other current assets Total current assets Property and equipment Land Buildings and improvements Fixtures and equipment Computer hardware and software Construction-in-progress Accumulated depreciation Property and equipment, net Other noncurrent assets Total assets Liabilities and shareholders’ investment Accounts payable Accrued and other current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Total current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Deferred income taxes Other noncurrent liabilities Total noncurrent liabilities Shareholders’ investment Common stock Additional paid-in-capital Retained earnings Accumulated other comprehensive loss Total shareholders’ investment Total liabilities and shareholders’ investment $ 62 2,919 12,947 (581) 15,347 44,533 $ 63 2,762 11,443 (556) 13,712 44,106 $ 6,511 3,120 796 900 11,327 10,643 4,475 835 1,906 17,859 $ 6,337 2,913 1,262 — 10,512 12,000 5,490 455 1,937 19,882 $ 5,793 22,152 4,743 2,575 502 (10,485) 25,280 829 44,533 $ 5,767 20,430 4,270 2,586 1,763 (9,060) 25,756 862 44,106 $ 2,200 6,966 7,179 2,079 18,424 $ 864 8,084 6,705 1,835 17,488 2010 January 31, 2009

Consolidated Statements of Cash Flows (millions) Operating activities Net earnings Reconciliation to cash flow Depreciation and amortization Share-based compensation expense Deferred income taxes Bad debt expense Loss / impairment of property and equipment, net Other non-cash items affecting earnings Changes in operating accounts providing / (requiring) cash: Accounts receivable originated at Target Inventory Other current assets Other noncurrent assets Accounts payable Accrued and other current liabilities Other noncurrent liabilities Other Cash flow provided by operations Investing activities Expenditures for property and equipment Proceeds from disposal of property and equipment Change in accounts eceivable originated at third parties Other investments Cash flow required for investing activities Financing activities Additions to short-term notes payable Reductions of short-term notes payable Additions to long-term debt Reductions of long-term debt Dividends paid Repurchase of stock Premiums on call options Stock option exercises and related tax benefit Other Cash flow provided by / (required for) financing activities — — — (1,970) (496) (423) — 47 — (2,842) — (500) 3,557 (1,455) (465) (2,815) — 43 (8) (1,643) 1,000 (500) 7,617 (1,326) (442) (2,477) (331) 210 (44) 3,707 (1,729) 33 (10) 3 (1,703) (3,547) 39 (823) (42) (4,373) (4,369) 95 (1,739) (182) (6,195) (57) (474) (280) (127) 174 257 25 — 5,881 (458) 77 (224) (76) (389) (230) (139) 160 4,430 (602) (525) (139) 101 111 62 124 (79) 4,125 2,023 103 364 1,185 97 103 1,826 72 91 1,251 33 222 1,659 73 (70) 481 28 52 $ 2,488 $ 2,214 $ 2,849 2009 2008 2007 Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 1,336 864 2,200 $ (1,586) 2,450 864 $ 1,637 813 2,450 Work Cited: 1. Target Corporation (TGT) annual report, November 20, 2010. 2. Target Corporation SEC filings: Annual report which provides a comprehensive overview of the company for the past year, November 20, 2010. 3. Target Corporation overview, November 20, 2010. 4. Target’s Major Direct Holders, Yahoo Finance, November 20, 2010. 5. Target’s Direct Competitor, Yahoo Finance, November 20, 2010. 6. Google Finance 7. Forbes. com

Cite this Financial Analysis Paper for Target

Financial Analysis Paper for Target. (2017, Feb 18). Retrieved from https://graduateway.com/financial-analysis-paper-for-target/

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