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3. Asset management assessment of Target Corporation Inc. A Financial Ratio Analysis of Target Corporation An Asset Management Assessment merchandise at discounted prices," and are interested in the company's historical and current financial activities and performance. Use the following 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 Colartad Tnroma Geatamant Ralanra Chaot and Dalatad natal Balance Sheet Data Assets:CashandmarketablesecuritiesReceivablesInventoryOthercurrentassetsTotalcurrentassetsNetfixedassetsOtherlong-termassetsTotalassets2010$1,712,000,0006,153,000,0007,596,000,0001,752,000,00017,213,000,00025,493,000,000999,000,000$43,705,000,0002009$2,200,000,0006,966,000,0007,179,000,0002,079,000,00018,424,000,00025,280,000,000829,000,000$44,533,000,0002008$864,000,0008,084,000,0006,705,000,0001,835,000,00017,488,000,00025,756,000,000862,000,000$44,106,000,000 Given Target's financial data, answer the following questions: Is Target's management wasting opportunities or investable dollars by holding too many or too few assets? Is the company holding the most appropriate type or distribution of 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 outstanding (DSO) ratios, in particular, are correct? Check all that apply. The trend of Target's DSO ratio suggests that over time it is collecting its receivables more quickly. The observed trend in Target's DSO ratio is consistent with either decreases in the firm's sales, increases in its Accounts receivable account balance, or both. In general, asset management ratios are designed to report the number of dollars of sales generated in the company's receivables, inventory, plant and equipment, or total assets. management performance. Which of the following behaviors could explain the trend in the inventory turnover ratio and therefore merit additional investigation? Check all that pply. The purchasing manager placed orders with suppliers even when sales didn't justify them. One or more suppliers offered favorable prices for making accelerated purchases. One or more suppliers offered favorable prices for making bulk purchases. 3. Consider the trend of Target's DSO ratios, as well as the pattern of its Sales and Accounts receivable balances. (Note: Round all intermediate and final calculations to two decimal places.) If Target is making fewer credit sales because management is concerned about future economic conditions and preventing defaults and unrecoverable accounts receivable, then this finding could reflect favorably in your assessment of management's performance. On the other hand, if credit sales are declining because sales associates in the company's stores are failing to encourage customers to open new Target credit cards, then this isn't a favorable behavior because the company may be opportunities for greater future sales and earned interest income. The reason why the fixed asset turnover ratio increases from 2009 to 2010 is that the Sales account increases by 0.84%, while the Net fixed asset account increases by only 3.71%. The behavior of Target's fixed asset turnover ratios is consistent with the pattern of its Sales account balances and inconsistent with the trend of its Accounts receivable balances. of generating ever-greater sales dollars using the same stock of property, plant, and equipment can be taken to extreme. Which increase a company's fixed asset turnover ratio to the detriment of the company's long-term viability and profitability? A company cuts back on the downtime and maintenance and repair activities necessary to preserve the performance of the property equipment. A company doesn't replace worn-out plant and equipment and operates the remaining assets over additional work shifts. In general, it earns $1.42 to $1.51 of for every dollar of assets owned. Given these insights and information, which of the following statements are correct? Check all that apply. The balance of Target's other long-term assets account should be included when calculating the company's fixed asset turnover ratio but not when calculating its total asset turnover ratio. Without knowing the trend of the company's gross fixed assets, several possible explanations for the trend of the fixed asset turnover ratio could include the writing-off of old, no salvageable equipment or a switch from straight-line depreciation to some form of accelerated depreciation (which would increase the company's annual depreciation expense and affect its accumulated depreciation account). Possible explanations for inventories that accumulate faster than the firm's sales include holding obsolete, missing, or unsalable items, as well as bulk purchases made to capitalize on discounts from suppliers, and preparation for busy seasonal sales periods (such as back-toschool and the Christmas holiday). The trend of the DSO ratio merits additional investigation to determine why the company's receivables balinges are declining Between 2008 and 2010, Target reduced the delay associated with collecting its accounts receivable by approximately 12 days. This is positive finding because it can lead to fewer uncollectible accounts. 3. Asset management assessment of Target Corporation Inc. A Financial Ratio Analysis of Target Corporation An Asset Management Assessment merchandise at discounted prices," and are interested in the company's historical and current financial activities and performance. Use the following 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 Colartad Tnroma Geatamant Ralanra Chaot and Dalatad natal Balance Sheet Data Assets:CashandmarketablesecuritiesReceivablesInventoryOthercurrentassetsTotalcurrentassetsNetfixedassetsOtherlong-termassetsTotalassets2010$1,712,000,0006,153,000,0007,596,000,0001,752,000,00017,213,000,00025,493,000,000999,000,000$43,705,000,0002009$2,200,000,0006,966,000,0007,179,000,0002,079,000,00018,424,000,00025,280,000,000829,000,000$44,533,000,0002008$864,000,0008,084,000,0006,705,000,0001,835,000,00017,488,000,00025,756,000,000862,000,000$44,106,000,000 Given Target's financial data, answer the following questions: Is Target's management wasting opportunities or investable dollars by holding too many or too few assets? Is the company holding the most appropriate type or distribution of 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 outstanding (DSO) ratios, in particular, are correct? Check all that apply. The trend of Target's DSO ratio suggests that over time it is collecting its receivables more quickly. The observed trend in Target's DSO ratio is consistent with either decreases in the firm's sales, increases in its Accounts receivable account balance, or both. In general, asset management ratios are designed to report the number of dollars of sales generated in the company's receivables, inventory, plant and equipment, or total assets. management performance. Which of the following behaviors could explain the trend in the inventory turnover ratio and therefore merit additional investigation? Check all that pply. The purchasing manager placed orders with suppliers even when sales didn't justify them. One or more suppliers offered favorable prices for making accelerated purchases. One or more suppliers offered favorable prices for making bulk purchases. 3. Consider the trend of Target's DSO ratios, as well as the pattern of its Sales and Accounts receivable balances. (Note: Round all intermediate and final calculations to two decimal places.) If Target is making fewer credit sales because management is concerned about future economic conditions and preventing defaults and unrecoverable accounts receivable, then this finding could reflect favorably in your assessment of management's performance. On the other hand, if credit sales are declining because sales associates in the company's stores are failing to encourage customers to open new Target credit cards, then this isn't a favorable behavior because the company may be opportunities for greater future sales and earned interest income. The reason why the fixed asset turnover ratio increases from 2009 to 2010 is that the Sales account increases by 0.84%, while the Net fixed asset account increases by only 3.71%. The behavior of Target's fixed asset turnover ratios is consistent with the pattern of its Sales account balances and inconsistent with the trend of its Accounts receivable balances. of generating ever-greater sales dollars using the same stock of property, plant, and equipment can be taken to extreme. Which increase a company's fixed asset turnover ratio to the detriment of the company's long-term viability and profitability? A company cuts back on the downtime and maintenance and repair activities necessary to preserve the performance of the property equipment. A company doesn't replace worn-out plant and equipment and operates the remaining assets over additional work shifts. In general, it earns $1.42 to $1.51 of for every dollar of assets owned. Given these insights and information, which of the following statements are correct? Check all that apply. The balance of Target's other long-term assets account should be included when calculating the company's fixed asset turnover ratio but not when calculating its total asset turnover ratio. Without knowing the trend of the company's gross fixed assets, several possible explanations for the trend of the fixed asset turnover ratio could include the writing-off of old, no salvageable equipment or a switch from straight-line depreciation to some form of accelerated depreciation (which would increase the company's annual depreciation expense and affect its accumulated depreciation account). Possible explanations for inventories that accumulate faster than the firm's sales include holding obsolete, missing, or unsalable items, as well as bulk purchases made to capitalize on discounts from suppliers, and preparation for busy seasonal sales periods (such as back-toschool and the Christmas holiday). The trend of the DSO ratio merits additional investigation to determine why the company's receivables balinges are declining Between 2008 and 2010, Target reduced the delay associated with collecting its accounts receivable by approximately 12 days. This is positive finding because it can lead to fewer uncollectible accounts
