3. Asset management assessment of Target Corporation Inc. Aa Aa A Financial Ratio Analysis of Target Corporation An Asset Management Assessment Assume that you are a prospective lending bank of Target Corporation (TGT), a retailer of "everyday essentials and fashionable, differentiated merchandise at discounted prices," and are interested in the company's historical and current financial activities and performance. Use the following financial data for Target to complete and conduct your financial ratio analysis. Then answer the questions that follow. Remember, the results of a ratio analysis often identify issues requiring additional investigation. Note: Assume that there are 365 days in a year, and that Target's inventory turnover ratio is computed by dividing its net sales by its ending inventory balance Target Corporation Selected Income Statement, Balance Sheet, and Related Data1 2008 Income Statement Sales Less: Cost of goods sold Gross profit Less: Selling, general, and administrative expenses Less: Other expenses Earnings before interest and taxes (EBIT) Less: Interest expense Earnings before taxes (EBT) Less: Taxes Net income Less: Common dividends paid Dividends per share 2010 2009 $65,786,000,000 $63,435,000,000 $62,884,000,000 20,061,000,000 13,469,000,000 860,000,000 5,252,000,000 757,000,000 4,495,000,000 1,575,000,000 45,725,000,000 44,062,000,000 44,157,000,000 19,373,000,000 13,078,000,000 1,521,000,000 4,673,000,000 18,727,000,000 12,954,000,000 1,609,000,000 4,402,000,000 866,000,000 3,536,000,000 1,322,000,000 801,000,000 3,872,00a,000 1,384,000,000 $2,920,000,000 $2,488,000,000 $2,214,000,000 609,000,000 496,000,000 465,000,000 $0.92 $0.67 $0.62 Given Target's financial data, answer the following questions: Given its current and projected future sales, does Target hold a reasonable quantity of current and fixed assets? How well is it managing its fixed assets and all its assets? To answer these questions, compute the listed asset management, or efficiency, ratios for 2008 through 2010 and evaluate each ratio and the trend of its component account balances. 1. Which of the following statements addressing the use of asset management ratios, in general and the inventory turnover and days sales outstanding (DSO) ratios, in particular, are correct? Target Corporation Asset Management Ratios In general, asset management ratios are designed to relate the value of a company's asset Inventory turnover ratio investment with the profits generated using those assets. In general, asset management ratios are designed to report the number of dollars of sales generated per dollar of investment made in the company's receivables, inventory, plant and equipment, or total assets. The trend of Target's DSO ratio suggests that over time it is collecting its receivables more quickly 2010 2009 2008 DSO 2010 2009 2008 In the absence of extraordinary events, the three-year trend of the inventory turnover ratio should be interpreted as unfavorable management performance Fixed asset turnover ratio 2. Which of the following behaviors could explain the trend in the inventory turnover ratio and therefore merit additional investigation? Check all that apply 2010 2009 2008 one or more suppliers offered favorable prices for making bulk purchases. One or more suppliers offered favorable prices for making accelerated purchases. The firm expanded an existing product line or developed a new product line. Total asset turnover ratio 3. Consider the trend of Target's DSO ratios, as well as the pattern of its Sales and Accounts receivable balances. 2010 2009 2008