Finance in Action - Ratio Analysis Assume that you are a prospective business partner of Target Corporation (TGT), a retaler 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 folowing financial data for Target to complete and conduct your financial ratio analysis. Then answer the questions that folow. Remember, the results of a ratio analysis often identify issues requiring additional investigation Target Corporation Selected Income Statement, Balance Sheet, and Related Data 2010 2009 2008 Income Statement Sales Less: Cost of goods sold Gross prof 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 $65,786,000,000 $63,435,000,000 62,884,000,000 45,725,000,000 44,062,000,000 44,157,000,000 20,061,000,000 19,373,000,000 18,727,000,000 13,469,000,000 13,078,000,00012,954,000,000 1,521,000,000 5,252,000,000 ,673,000,000 4,402,000,000 01,000,000 ,495,000,000 3,872,000,000 3,536,000,000 1,575,000,000 1,384,000,000 1,322,000,000 860,000,000 1,609,000,000 757,000,000 866,000,000 $2,920,000,000 2,488,000,000 2,214,000,000 465,000,000 10.62 609,000,000 496,000,000 Dividends per share 10.92 $0.67 Now consider Target's market value ratios. That is, how do buyers and salers of the company's shares perceive the value of the firm-given its financial condition and operating performance? Target Corporation Market Value Ratios 1. From 2008 through 2010, Target's market capitalizetion increased. Specifically, it increased fronm 23,484,628,077 to 338,177,921,357 between 2008 and 2009 and to $38,264,477,148 in 2010. Which of the folowing statements are correct? Check all that apply, Book value per share Now consider Target's market vaiue ratios. That is, how do buyers and sellers of the company's shares perceive the value of the firm-given is financial condition and operating performance? Target Corporation Market Value Ratios 1. From 2008 through 2010, Targer's market capitalization increased. Specifically, it increased from 23,484,628,877 to $38,177,921,157 between 2008 and 2009 and to $38,264 477,148 in 2010. Which of the following statements are correct? Check all that appy Book value per share During the periods 2008 to 2009 and 2009 to 2010, the positive pressure forn the increasing market prices was greater, or strenger, than the offseting, or negative, pressure from the decreased number of shares outstanding. 010 008 Market price per share a During the periods 2008 to 2009 and 2009 to 2010, the number of common shares outstanding decreased by 1.08% and 5.45%, respectively. During the periods 2008 to 2009 and 2009 to 2010, the market price of Target's common shares 2010 2009 2008 $54.35 $51.27 $31.20 increased by 39.15% and 567%, respectively. During the periods 2008 to 2009 and 2009 to 2010, the market price of Target's common shares increased by 64.33% and 6 01%, respectively. EPS 2010 2009 2008 P/E ratio 2010 2009 2008 M/B ratio 2010 These changes in the company's market capitalization should be construed as should be investigated further. One reasonable question that should be asked is: For whet reason were the the period 2008 through 20107 Was it part of earlier planned program, or were they repurchased to reduce the supply of shares available in the equity market and thereby the shares? (Note: The answer to this question can be found, in part, by reading the company's annual reports.) news and shares, or approximately 6.47% of 200's outstandeg shares, repurchased during the market price of from year to year. In 2. Similarly, from 2008 through 2010, the company's book velue general, and assuming that everything else remains constant, this behavior should have tended to increased, which suggests that the percentage increase in the market price had been percentage increase in the company's book value. than the 2008 Because the denominator of both the market price per share and the book value per share ratios is the number of shares outstanding, the trend of the H/B ratio indicates which of the folowing? 2010 2009 2008 P/E ratio 2010 2009 2008 M/B ratio 2010 2009 2008 These changes in the company's market capitalization should be construed as should be investigated further. One reasonable question that should be asked is: For what reason were the news and shares, or approximately 6.47% of 2008's outstanding shares, repurchased during the period 2008 through 20107 Was it part of earler planned program, or were they repurchased to reduce the supply of shares available in the equity market and thereby the shares? (Note: The answer to this question can be found, in part, by reading the company's annual reports.) the market price of 2. Similarly, from 2008 through 2010, the company's book value general, and assuming that everything else remains constant, this behavior should have tended to from year to year. In the compan's market-to-book (MB) ratio. However, over time, Target's M/B ratio had increased, which suggests that the percentage increase in the market price had been percentage increase in the company's book value than the Because the denominator of both the market price per share and the book value per share ratios is the number of shares outstanding, the trend of the M/B ratio indicates which of the following? O The market placed a decreasing value on the portion of the company owned by the common sharehoiders. O The market placed an increasing value on the portion of the company owned by the common shareholders O The market placed an increasing value on the portion of the company owned by the creditors and debtholders 3. Target's earnings per share (EPS) ratio, which is calcul ated by dividing its exhibited a consistently increasing trend, growing by. by the number of common shares outstanding between 2008 and 2009 and by between 2009 and 2010 4. From 2008 through 2010, Target's price-to-earnings (P/E) ratio exhibited an inconsistent trend. Which of the following phenomena contributed to this pattern? Check all that apply Between 2009 and 2010, Target's EpS increased by a greater percentage than the market price of its common shares EPS. Between 2008 and 2009, Target's EPS increased by a greater percentage than the market price of its common shares. D Between 2008 and 2009, the market price per share of Target's common stock increased by a greater percentage than that exthibited by its