A Financial Ratio Analysis of Target Corporation A Debt Management Assessment Assume that you are an existing supplier 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. Target Corporation Selected Income Statement, Balance Sheet, and Related Data1 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 2008 $65,786,000,000 $63,435,000,000 $62,884,000,000 44,157,000,000 2010 2009 45,725,000,000 44,062,000,000 20,061,000,000 19,373,000,000 18,727,000,000 13,078,000,000 1,521,000,000 4,673,000,000 13,469,000,000 860,000,000 5,252,000,000 757,000,000 4,495,000,000 1,575,000,000 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 3,872,000,000 1,384,000,000 $2,920,000,000 $2,488,000,000 2,214,000,000 609,000,000 $0.92 496,000,000 $0.67 465,000,000 $0.62 Target Corporation Debt Management Ratios 1. Over the period of 2008 to 2010, Target's use of debt capital, in dollar terms consistently from year to year, as did the company's debt ratio Debt ratio 2010 2009 2008 Equity ratio 2010 2009 2008 To identify the accounts that contributed to these behaviors, consider the fluctuations in the asset and liability accounts over the three-year period. Therefore, from 2008 to 2010, the accounts that contributed to the previously identified change in the debt ratio include which of the following? Check all that apply Accruals, which changed by $413,000,000 Other current liabilities, which changed by $1,143,000 Payables, which changed by $288,000,000 Inventory, which changed by $891,000,000 Other current assets, which changed by $83,000,000 Net fixed assets, which changed by $263,000,000 Cash and marketable securities, which changed by $848,000,000 Long-term liabilities, which changed by $1,734,000,000 Receivables, which changed by $1,931,000,000 Other long-term assets, which changed by $137,000,000 Equity multiplier 2010 2009 2008 TIE ratio 2010 2009 2008 2. The reciprocal of the assets financed per dollar of equity financing. This value is one component of the equation, which is used to disaggregate the company's return on equity (ROE) into three important drivers of financial performance: the company's of , called the , indicates the dollars of total , asset utilization efficiency, and use The data indicates that as Target's debt ratio decreases, its equity multiplier 3. Which of the following statements are correct? Check all that apply The behavior of the debt ratio at least partially explains the observed behavior of Target's Accounts payable account between 2008 and 2010 The 12.94% increase in the Total Equity account, between 2008 and 2010, partially explains the observed behavior of the equity ratio and The 19.31% increase in Target's EBIT, between 2008 and 2010, contributes to the observed behavior of the times-interest-earned (TIE) ratio The trend of the firm's TIE ratio will not be interpreted as good news by Target's interest-earning creditors the equity multiplier One contributing factor to the observed behavior of the TIE ratio is the trend in Target's interest expense A Financial Ratio Analysis of Target Corporation A Debt Management Assessment Assume that you are an existing supplier 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. Target Corporation Selected Income Statement, Balance Sheet, and Related Data1 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 2008 $65,786,000,000 $63,435,000,000 $62,884,000,000 44,157,000,000 2010 2009 45,725,000,000 44,062,000,000 20,061,000,000 19,373,000,000 18,727,000,000 13,078,000,000 1,521,000,000 4,673,000,000 13,469,000,000 860,000,000 5,252,000,000 757,000,000 4,495,000,000 1,575,000,000 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 3,872,000,000 1,384,000,000 $2,920,000,000 $2,488,000,000 2,214,000,000 609,000,000 $0.92 496,000,000 $0.67 465,000,000 $0.62 Target Corporation Debt Management Ratios 1. Over the period of 2008 to 2010, Target's use of debt capital, in dollar terms consistently from year to year, as did the company's debt ratio Debt ratio 2010 2009 2008 Equity ratio 2010 2009 2008 To identify the accounts that contributed to these behaviors, consider the fluctuations in the asset and liability accounts over the three-year period. Therefore, from 2008 to 2010, the accounts that contributed to the previously identified change in the debt ratio include which of the following? Check all that apply Accruals, which changed by $413,000,000 Other current liabilities, which changed by $1,143,000 Payables, which changed by $288,000,000 Inventory, which changed by $891,000,000 Other current assets, which changed by $83,000,000 Net fixed assets, which changed by $263,000,000 Cash and marketable securities, which changed by $848,000,000 Long-term liabilities, which changed by $1,734,000,000 Receivables, which changed by $1,931,000,000 Other long-term assets, which changed by $137,000,000 Equity multiplier 2010 2009 2008 TIE ratio 2010 2009 2008 2. The reciprocal of the assets financed per dollar of equity financing. This value is one component of the equation, which is used to disaggregate the company's return on equity (ROE) into three important drivers of financial performance: the company's of , called the , indicates the dollars of total , asset utilization efficiency, and use The data indicates that as Target's debt ratio decreases, its equity multiplier 3. Which of the following statements are correct? Check all that apply The behavior of the debt ratio at least partially explains the observed behavior of Target's Accounts payable account between 2008 and 2010 The 12.94% increase in the Total Equity account, between 2008 and 2010, partially explains the observed behavior of the equity ratio and The 19.31% increase in Target's EBIT, between 2008 and 2010, contributes to the observed behavior of the times-interest-earned (TIE) ratio The trend of the firm's TIE ratio will not be interpreted as good news by Target's interest-earning creditors the equity multiplier One contributing factor to the observed behavior of the TIE ratio is the trend in Target's interest expense