Principles of Accounting II Financial Statement Analysis Project

ACCT& 202 -- Principles of Accounting II Financial Statement Analysis Project Using (adapted) Target Corporation Financial Statements Instructions: 1. Using the adapted) information for Target Corporation provided below, calculate the key ratios indicated on the "Key Ratios" page. Be sure to document your calculations. (Show your work!) 2. 3. 4. Note: Round your final results to one decimal place. Check your results with your instructor. Enter your results on the Key Ratios page. Study your results and compare: A. Target's current year results to prior year's B. Each ratio in relation to the other ratios that you calculated (for example, is Target both liquid and profitable, or one but not the other or neither?) C. Target's results to the Industry results (provided) D. Target's results to the "All industries" results (provided) Choose 2 ratios from among the ones you calculated. (You will anaylyze/discuss these two ratios in a written document -- details in Step 6.) General guidelines for your written discussion: A. Assume that you are a Target employee preparing the analysis in business memo form for your boss, Target's CEO. B. Make sure your points are valid based on the information included in this project. 5. 6. C. D. The points you make should be expressed clearly and concisely. Use bullets and white space as needed to make your memo as easy and fast to read as possible. E. Your goal is to effectively communicate accurate, insightful, useful information about Target Corporation's business performance and position in as few words as possible. More tips, hints, and the grading rubric are provided in a separate tab. 7. On or before the due date, submit the following: A. Memo B. Key Ratios sheet (completed) C. Your calculations for the key ratios 8. Project grading rubric: 36 Calculations 4 Key Ratios sheet (completed) 60 Memo (detailed rubric for the memo is included with "Memo Tips and Hints") 100 Total points possible Tips & Hints for Target Project Memo Checklist OD Ground rules: Word process your memo. Use a business memo layout with a header that includes: 1. Company name Company logo is optional) 2. To: 3. From: 4. Date: 5. Subject: (Use Google to find examples of memo layouts.) You are addressing your memo to Target's CEO (Google to get the CEO's actual name) Assume that you are a Target Corporation staff accountant (a Target employee) Use the current date. The Subject should be a short phrase that accurately tells the reader what the memo is about. Give careful consideration to the Subject line -- this is the single most important piece of information in the memo, since it will cause your reader to read or ignore the memo. Use single (line) spacing for any sentences/paragraphs. Make sure to start your memo with an introductory sentence or two. Use bullets and white space to make your memo quick to read - big blocks of text and lots of numbers embedded among words slow the reader down. (Don't put formulas in the middle of sentences.) Also, consider that when you use bullet points, you don't have to use complete sentences, so it saves you writing time! After you have picked two ratios to talk about, for each ratio, include in your discussion the following points: Ratio #1 #2 The ratio formula (the formula in words, then the formula using numbers). (See example below.) Explain what the ratio is designed to measure (e.g. how liquid the company is or how effectively it uses its assets, etc.) For the particular ratio, state whether higher or lower is better in general. Describe what the ratio results tell you about Target's performance or financial position as compared with Target's recent past, the industry and the combined industries' performance. O Make sure to conclude your memo with a brief sentence or two. Example: Keep the formulas separate from the text (sentences): formula in words formula using numbers Current ratio = Current Assets / Current Liabilities 1.3 63,554 / 48,932 Memo grading rubric 10 Header information 2 Effective subject 2 Brief introduction 4 Formula in words 4 Formula using numbers 4 Purpose of ratio (what it measures) 4 Is higher or lower generally better 4 How is Target doing compared to all businesses, the retail industry, to the previous year 2 Brief conclusion/closing 10 Layout -- easy/quick to read; professional; information flows in logical sequence 4 Tone (courteous, professional); efficiency (concise) 10 Writing mechanics (spelling, punctuation, grammar, etc.) 60 Total points possible for memo Target Corporation Key Ratios Industry: Retail Trade Results provided are based on 2019 data Financial data in U.S. dollars 2019 2019 Target Corp. 2019 2018 (Fiscal Year (Fiscal Year Ended Ended 02/01/2020) 02/02/2019) Retail Industry 1.1 All Industries 1.6 0.3 1.0 20.3 17.4 18.0 21.0 Current Ratio Quick Ratio Inventory Turnover Days' Sales in Inventory Debt to Equity Interest Coverage Asset Turnover Return On Assets (%) Return On Equity (%) 1.5 1.0 3.2 1.9 5.6 1.7 9.5 2.4 3.8 3.2 O Target Corporation TARGET Consolidated Statements of Operations (adapted) (millions, except per share data) 2018 2/2/19 Sales Other revenue Total revenue -- 2019 2/1/20 77,130 982 78,112 54,864 16 227 2,357 4,658 477 (9) 4,190 921 3,269 12 3,281 74,433 923 75,356 52 200 1579 15,723 22 2.224 444 4,110 14 461 (27) 3,676 746 Cost of sales (cost of merchandise sold) Selling, general and administrative expenses Depreciation and amortization Operating income Net interest expense Net other (income) /expense Earnings from continuing operations before income taxes Provision for income taxes (Income tax expense) Mat Net earnings from continuing operations Discontinued operations, net of tax Net earnings (Net income) Basic earnings per share Continuing operations Discontinued operations Net earnings per share Note: Per share amounts may not foot due to rounding : 2017 2/3/18 71,786 928 72,714 51,125 150 2225 2,225 4.224 653 ( (59) 3,630 722 2,908 6 2,914 2,930 7 2,937 6.39 0.02 6.42 5.54 0.01 5.55 5.32 0.01 Consolidated Statements of Financial Position (adapted) (millions, except footnotes) 2019 2018 2017 2/1/20 22/19 23/18 Assets Cash and cash equivalents 2,577 1,556 1,512 Short-term investments 1,131 Inventory 8,992 9,497 8,657 Other current assets (not quick assets) 1,333 1,466 1,264 Total current assets 12,902 12,519 12,564 Property and equipment Tamil Land 6,036 6,064 6,095 Buildings and improvements 30,603 29,240 28,396 Fixtures and equipment 6,083 5,912 5,623 Computer hardware and software 2,692 2,544 2,645 Construction-in-progress en 533 460 440 Accumulated depreciation (19,664) (18,687) (18,181) Property and equipment, net 26,283 25,533 25,018 Operating lease assets 2,236 1,965 Other noncurrent assets 1.358 1,273 1,417 Total Total assets 42,779 41,290 38,999 Liabilities and shareholders' investment Accounts payable 9,920 9,761 8,677 Accrued and other current liabilities 4,406 4,201 4,254 Current portion of long-term debt and other borrowings 161 1,052 Total current liabilities 14,487 15,014 13,201 Long-term debt and other borrowings 11,338 10,223 Noncurrent operating lease liabilities 2.275 4,219 2,004 Deferred income taxes 1,122 972 713 Other noncurrent liabilities 1,724 1,780 2,059 Total noncurrent liabilities olemoncurrent 16,459 14,979 14,089 (Total Liabilities) 30,946 29,993 27,290 Shareholders' Investment (Stockholders' Equity) Common stock 42 43 45 Additional paid-in capital 6,226 6,042 5,858 Retained earnings 6,433 6,017 6,553 Accumulated other comprehensive loss (868) (805) (747) Total shareholders' investment 11,833 11,297 11,709 Total liabilities and shareholders' investment 42,779 41,290 38,999 Common Stock Authorbed 6,000,000,000 shares. $0.0833 par value 504, 198,962 shares issued and outstanding as of February 1, 2020; 517,761,600 shares sued and outstanding as of February 2, 2019 5.32 270 11,317 Preferred Stock Authorized 5,000,000 shares, $0.01 par value, no shares were issued or outstanding during any period presented See accompanying Notes to Consolidated Financial Statements Workpaper Target Corporation Key Ratios Fiscal Year 2019 Fiscal Year 2018 Current Ratio Quick Ratio Inventory Tumover Days' Sales in Inventory Debt to Equity Interest Coverage Asset Turnover Retum On Assets (%) Retum On Equity (%) Exhibit 13 Summary of Analytical Measures (adapted) Liquidity Measures Use Working Capital Measures the company's ability to pay current liabilities with current assets. Current Ratio Quick Ratio Measures the company's instant debt-paying ability, Accounts Receivable Turnover Numbers of Days'Sales in Receivables Method of Computation Current Assets - Current Liabilities Current Assets Current Liabilities Quick Assets Current Liabilities Sales Average Accounts Receivable Average Accounts Receivable Average Daily Sales * Cost of Merchandise Sold Average Merchandise Inventory Average Merchandise Inventory Average Daily Cost of Merchandise Sold * Measures the company's efficiency in collecting receivables and in the management of credit. Inventory Turnover Measures the company's efficiency in managing merchandise inventory. Number of Days' Sales in Inventory Solvency Measures Ratio of Fixed Assets to Long-Term Liabilities Ratio of Liabilities to Stockholders' Equity Fixed Assets (net) Long-Term Liabilities Total Liabilities Total Stockholders' Equity Income Before Income Tax + Interest Expense Interest Expense Measures the margin of safety available to long-term creditors. Measures how much of the company is financed by debt and equity. Measures the risk that interest payments will not be made if earnings decrease. Times Interest Earned Profitability Measures Asset Turnover Measures how effectively a company uses its assets. Measures the profitability of a company's assets. Return on Total Assets Sales Average Total Assets Net Income + Interest Expense Average Total Assets Net Income Average Total Stockholders' Equity Net Income - Preferred Dividends Average Common Stockholders' Equity Net Income - Preferred Dividends Shares of Common Stock Outstanding Return on Stockholders' Equity Return on Common Stockholders' Equity Earnings per Share (EPS) on Common Stock Measures the profitability of the investment by stockholders. Measures the profitability of the investment by common stockholders. Price-Earnings (P/E) Ratio Market Price per Share of Common Stock Earnings per Share on Common Stock Measures future earnings prospects, based on the relationship between market value of common stock and earnings. Measures the extent to which earnings are being distributed to common stockholders. Dividends per Share Dividends on Common Stock Shares of Common Stock Outstanding Dividends per Share of Common Stock Market Price per Share of Common Stock Dividend Yield Measures the rate of return to common stockholders in terms of dividends. ACCT& 202 -- Principles of Accounting II Financial Statement Analysis Project Using (adapted) Target Corporation Financial Statements Instructions: 1. Using the adapted) information for Target Corporation provided below, calculate the key ratios indicated on the "Key Ratios" page. Be sure to document your calculations. (Show your work!) 2. 3. 4. Note: Round your final results to one decimal place. Check your results with your instructor. Enter your results on the Key Ratios page. Study your results and compare: A. Target's current year results to prior year's B. Each ratio in relation to the other ratios that you calculated (for example, is Target both liquid and profitable, or one but not the other or neither?) C. Target's results to the Industry results (provided) D. Target's results to the "All industries" results (provided) Choose 2 ratios from among the ones you calculated. (You will anaylyze/discuss these two ratios in a written document -- details in Step 6.) General guidelines for your written discussion: A. Assume that you are a Target employee preparing the analysis in business memo form for your boss, Target's CEO. B. Make sure your points are valid based on the information included in this project. 5. 6. C. D. The points you make should be expressed clearly and concisely. Use bullets and white space as needed to make your memo as easy and fast to read as possible. E. Your goal is to effectively communicate accurate, insightful, useful information about Target Corporation's business performance and position in as few words as possible. More tips, hints, and the grading rubric are provided in a separate tab. 7. On or before the due date, submit the following: A. Memo B. Key Ratios sheet (completed) C. Your calculations for the key ratios 8. Project grading rubric: 36 Calculations 4 Key Ratios sheet (completed) 60 Memo (detailed rubric for the memo is included with "Memo Tips and Hints") 100 Total points possible Tips & Hints for Target Project Memo Checklist OD Ground rules: Word process your memo. Use a business memo layout with a header that includes: 1. Company name Company logo is optional) 2. To: 3. From: 4. Date: 5. Subject: (Use Google to find examples of memo layouts.) You are addressing your memo to Target's CEO (Google to get the CEO's actual name) Assume that you are a Target Corporation staff accountant (a Target employee) Use the current date. The Subject should be a short phrase that accurately tells the reader what the memo is about. Give careful consideration to the Subject line -- this is the single most important piece of information in the memo, since it will cause your reader to read or ignore the memo. Use single (line) spacing for any sentences/paragraphs. Make sure to start your memo with an introductory sentence or two. Use bullets and white space to make your memo quick to read - big blocks of text and lots of numbers embedded among words slow the reader down. (Don't put formulas in the middle of sentences.) Also, consider that when you use bullet points, you don't have to use complete sentences, so it saves you writing time! After you have picked two ratios to talk about, for each ratio, include in your discussion the following points: Ratio #1 #2 The ratio formula (the formula in words, then the formula using numbers). (See example below.) Explain what the ratio is designed to measure (e.g. how liquid the company is or how effectively it uses its assets, etc.) For the particular ratio, state whether higher or lower is better in general. Describe what the ratio results tell you about Target's performance or financial position as compared with Target's recent past, the industry and the combined industries' performance. O Make sure to conclude your memo with a brief sentence or two. Example: Keep the formulas separate from the text (sentences): formula in words formula using numbers Current ratio = Current Assets / Current Liabilities 1.3 63,554 / 48,932 Memo grading rubric 10 Header information 2 Effective subject 2 Brief introduction 4 Formula in words 4 Formula using numbers 4 Purpose of ratio (what it measures) 4 Is higher or lower generally better 4 How is Target doing compared to all businesses, the retail industry, to the previous year 2 Brief conclusion/closing 10 Layout -- easy/quick to read; professional; information flows in logical sequence 4 Tone (courteous, professional); efficiency (concise) 10 Writing mechanics (spelling, punctuation, grammar, etc.) 60 Total points possible for memo Target Corporation Key Ratios Industry: Retail Trade Results provided are based on 2019 data Financial data in U.S. dollars 2019 2019 Target Corp. 2019 2018 (Fiscal Year (Fiscal Year Ended Ended 02/01/2020) 02/02/2019) Retail Industry 1.1 All Industries 1.6 0.3 1.0 20.3 17.4 18.0 21.0 Current Ratio Quick Ratio Inventory Turnover Days' Sales in Inventory Debt to Equity Interest Coverage Asset Turnover Return On Assets (%) Return On Equity (%) 1.5 1.0 3.2 1.9 5.6 1.7 9.5 2.4 3.8 3.2 O Target Corporation TARGET Consolidated Statements of Operations (adapted) (millions, except per share data) 2018 2/2/19 Sales Other revenue Total revenue -- 2019 2/1/20 77,130 982 78,112 54,864 16 227 2,357 4,658 477 (9) 4,190 921 3,269 12 3,281 74,433 923 75,356 52 200 1579 15,723 22 2.224 444 4,110 14 461 (27) 3,676 746 Cost of sales (cost of merchandise sold) Selling, general and administrative expenses Depreciation and amortization Operating income Net interest expense Net other (income) /expense Earnings from continuing operations before income taxes Provision for income taxes (Income tax expense) Mat Net earnings from continuing operations Discontinued operations, net of tax Net earnings (Net income) Basic earnings per share Continuing operations Discontinued operations Net earnings per share Note: Per share amounts may not foot due to rounding : 2017 2/3/18 71,786 928 72,714 51,125 150 2225 2,225 4.224 653 ( (59) 3,630 722 2,908 6 2,914 2,930 7 2,937 6.39 0.02 6.42 5.54 0.01 5.55 5.32 0.01 Consolidated Statements of Financial Position (adapted) (millions, except footnotes) 2019 2018 2017 2/1/20 22/19 23/18 Assets Cash and cash equivalents 2,577 1,556 1,512 Short-term investments 1,131 Inventory 8,992 9,497 8,657 Other current assets (not quick assets) 1,333 1,466 1,264 Total current assets 12,902 12,519 12,564 Property and equipment Tamil Land 6,036 6,064 6,095 Buildings and improvements 30,603 29,240 28,396 Fixtures and equipment 6,083 5,912 5,623 Computer hardware and software 2,692 2,544 2,645 Construction-in-progress en 533 460 440 Accumulated depreciation (19,664) (18,687) (18,181) Property and equipment, net 26,283 25,533 25,018 Operating lease assets 2,236 1,965 Other noncurrent assets 1.358 1,273 1,417 Total Total assets 42,779 41,290 38,999 Liabilities and shareholders' investment Accounts payable 9,920 9,761 8,677 Accrued and other current liabilities 4,406 4,201 4,254 Current portion of long-term debt and other borrowings 161 1,052 Total current liabilities 14,487 15,014 13,201 Long-term debt and other borrowings 11,338 10,223 Noncurrent operating lease liabilities 2.275 4,219 2,004 Deferred income taxes 1,122 972 713 Other noncurrent liabilities 1,724 1,780 2,059 Total noncurrent liabilities olemoncurrent 16,459 14,979 14,089 (Total Liabilities) 30,946 29,993 27,290 Shareholders' Investment (Stockholders' Equity) Common stock 42 43 45 Additional paid-in capital 6,226 6,042 5,858 Retained earnings 6,433 6,017 6,553 Accumulated other comprehensive loss (868) (805) (747) Total shareholders' investment 11,833 11,297 11,709 Total liabilities and shareholders' investment 42,779 41,290 38,999 Common Stock Authorbed 6,000,000,000 shares. $0.0833 par value 504, 198,962 shares issued and outstanding as of February 1, 2020; 517,761,600 shares sued and outstanding as of February 2, 2019 5.32 270 11,317 Preferred Stock Authorized 5,000,000 shares, $0.01 par value, no shares were issued or outstanding during any period presented See accompanying Notes to Consolidated Financial Statements Workpaper Target Corporation Key Ratios Fiscal Year 2019 Fiscal Year 2018 Current Ratio Quick Ratio Inventory Tumover Days' Sales in Inventory Debt to Equity Interest Coverage Asset Turnover Retum On Assets (%) Retum On Equity (%) Exhibit 13 Summary of Analytical Measures (adapted) Liquidity Measures Use Working Capital Measures the company's ability to pay current liabilities with current assets. Current Ratio Quick Ratio Measures the company's instant debt-paying ability, Accounts Receivable Turnover Numbers of Days'Sales in Receivables Method of Computation Current Assets - Current Liabilities Current Assets Current Liabilities Quick Assets Current Liabilities Sales Average Accounts Receivable Average Accounts Receivable Average Daily Sales * Cost of Merchandise Sold Average Merchandise Inventory Average Merchandise Inventory Average Daily Cost of Merchandise Sold * Measures the company's efficiency in collecting receivables and in the management of credit. Inventory Turnover Measures the company's efficiency in managing merchandise inventory. Number of Days' Sales in Inventory Solvency Measures Ratio of Fixed Assets to Long-Term Liabilities Ratio of Liabilities to Stockholders' Equity Fixed Assets (net) Long-Term Liabilities Total Liabilities Total Stockholders' Equity Income Before Income Tax + Interest Expense Interest Expense Measures the margin of safety available to long-term creditors. Measures how much of the company is financed by debt and equity. Measures the risk that interest payments will not be made if earnings decrease. Times Interest Earned Profitability Measures Asset Turnover Measures how effectively a company uses its assets. Measures the profitability of a company's assets. Return on Total Assets Sales Average Total Assets Net Income + Interest Expense Average Total Assets Net Income Average Total Stockholders' Equity Net Income - Preferred Dividends Average Common Stockholders' Equity Net Income - Preferred Dividends Shares of Common Stock Outstanding Return on Stockholders' Equity Return on Common Stockholders' Equity Earnings per Share (EPS) on Common Stock Measures the profitability of the investment by stockholders. Measures the profitability of the investment by common stockholders. Price-Earnings (P/E) Ratio Market Price per Share of Common Stock Earnings per Share on Common Stock Measures future earnings prospects, based on the relationship between market value of common stock and earnings. Measures the extent to which earnings are being distributed to common stockholders. Dividends per Share Dividends on Common Stock Shares of Common Stock Outstanding Dividends per Share of Common Stock Market Price per Share of Common Stock Dividend Yield Measures the rate of return to common stockholders in terms of dividends