E4-29.Adjusting Financial Information Prior to Credit Analysis ANALYST ADJUSTMENTS 4.2 Target reports the following financial information in its fom1 10-K dated February 2, 2019. Note: Target had not yet adopted the new lease standard .

$millions Feb. 2, 2019 Feb. 3,2018 Total liabilities ....................... . ..•.. • ....... • ..•....... • .. • .

Equity .. ........................................... ... . ....... . . .

Operating lease liabilities (not included on balance sheet) ..... • ....... . ....

EBIT* ................... . .. .... ... . ................ • ............

Interest expense* .................................. .. . .......... .. .

Operating lease interest included in selling, general, & admin (rent expense)* .. .

•Adjusted for a 53rd week in year ended February 3, 2018 Required

a. Compute Liabilities to equity and Times interest earned for both years.

$29,993 11,297 2,170 4,137 461 83

$28,652 11 ,651 2,072 4,283 641 79

b. Before calculating solvency ratios, credit rating agencies routinely adjust total liabilities by adding operating lease liabi lities. Adjust Target's total liabilities and recalculate the liabilities to equity ratio.

Does the adjustment make a material difference in the ratio?

c. Before calculating coverage ratios, credit rating agencies routinely adjust interest expense by adding operating lease interest. Adjust Target's interest expense and recalculate the times interest earned ratio.

Does the adjustment make a material difference in the ratio?

TARGET

(TGT) •