Question

(1)

Use the financial statements and the information provided here

Target's Ill-fated Canadian Expansion. In the early 2000s, Canada had four department store chains: The Hudson's Bay Company, Sears, Zellers, and Walmart. Zellers was a discount department retailer founded in 1931. It reached its peak in the 1990s with 350 stores. Its inability to compete with Walmart led to its slow demise during the 2000s. In 2011, Target Corp. purchased most of Zeller's leases (135) for $1.636 billion. In 2013, in aggressive expansion into Canada, Target opened 124 stores in the locations previously occupied by Zellers. The first year of operations was not good, with weak sales, empty shelves, and complaints from customers that product selection and prices did not match US stores. This was due to issues like labeling laws (all labels must be bilingual), product packaging laws (packaging weight and sizes are regulated), and Canadian import tariffs. For example, men's clothing imported to Canada is subject to a 13% tariff. These laws and regulations forced Target to source its products through different (more expensive) Canadian suppliers and required it to set up three Canadian distribution centers. At the end of fiscal 2013, Target reported EBIT of negative $941million on sales of $1,317M. In November of 2014, speculation rose that Target might withdraw from Canada. Based on those rumors, Target's stock price rose from $60 in late October to $75 by mid-December. On January 15, 2015 Target announced it would close all of its Canadian stores.

Target Corp., Financial Statements ($ million)
Fiscal Year	2011	2012	2013
Year Ending	01/28/2012	02/02/2013	02/01/2014
Sales revenues	68,466	71,960	72,596
Credit card revenues	1,399	1,341	0
Total Revenues	69,865	73,301	72,596
Cost of Goods Sold	47,860	50,568	51,160
Selling, general & administrative expenses	14,106	14,753	14,984
Credit card expenses	446	467	0
Depreciation	2,131	2,142	2,223
EBIT	5,322	5,371	4,229
Interest	866	762	1,126
Earnings before income taxes	4,456	4,609	3,103
Income taxes	1,527	1,610	1,132
Net earnings (loss)	2,929	2,999	1,971
Shares outstanding	669	645	633
Dividends per share	1.15	1.38	1.65
Number of shares repurchased	37.2	32.2	21.9
Average Repurchase price	50.89	58.96	67.41
Cash & cash equivalents	794	784	695
Inventory	7,918	7,903	8,766
Accounts Receivables	6,927	6,857	1,347
Other Current Assets	810	844	765
Total current assets	16,449	16,388	11,573
Property & equipment, net	29,149	30,653	31,378
Other noncurrent assets	1,032	1,122	1,602
Total assets	46,630	48,163	44,553
Accounts payable	6,857	7,056	7,683
Accrued & other current liabilities	3,644	3,981	3,934
Short-term debt	3,786	2,994	1,160
Total current liabilities	14,287	14,031	12,777
Long-term debt	13,447	14,648	11,678
Other non-current liabilities	3,075	2,930	3,867
Total Liabilities	30,809	31,609	28,322
Common stock & paid-in capital	2,862	3,399	3,632
Retained earnings	12,959	13,155	12,599
Total owner's equity	15,821	16,554	16,231
Total liabilities and owner's equity	46,630	48,163	44,553

Selected Financial Ratios Target Corp.
Fiscal Year	2011	2012	2013
Year Ending	01/28/2012	02/02/2013	02/01/2014
ROE	18.51 %	18.12 %
(1+D/E)	2.95	2.91	2.74
ROA	6.28 %	6.23 %
Total Asset Turnover	1.50	1.52	1.63
Net Profit Margin	4.19 %	4.09 %
Gross Profit Margin	31.50 %		29.53 %
Capital Expenditures ($ million)	5,787	3,646	2,948
Fixed Asset Turnover	2.40	2.39
Inventory Turnover	6.04	6.40
Accounts Receivable Turnover	10.09	10.69

The return on equity for 2013 is (BLANK)% ?(Round to two decimal places.)

The return on assets for 2013 is (BLANK)%.?(Round to two decimal places.)

The net profit margin for 2013 is (BLANK)%.?(Round to two decimal places.)

The gross profit margin for 2012 is (BLANK) %?(Round to two decimal places.)

The fixed asset turnover for 2013 is (BLANK)?(Round to two decimal places.)

The inventory turnover for 2013 is (BLANK)?(Round to two decimal places.)

The receivables turnover for 2013 is (BLANK)?.(Round to two decimal places.)

a. What happened to Target's ROE in 2013 compared to 2012? (Select from the drop-down menu.)

Target's ROE

decreased

stayed the same

increased

from fiscal year 2012 to 2013.

b) Using the Du Pont ratios, what is the biggest cause of the change in ROE from 2012 to 2013? (Select the best choice below.)

A. Change in ROA.

B. Change in total asset turnover.

C. Change in net profit margin.

D. Change in stock price.

E. Change in leverage.

c. In 2013, what is Target's biggest asset? (Select the best choice below.)

A.Human resources.

B.Fleet of trucks

C.Inventory.

D.Stores.

E.Accounts Receivable.

d. Between 2011 and 2013, which activity ratio best reflects the failure of the Canadian expansion? (Select the best choice below.)

A.Fixed Asset (PP&E) Turnover

B.Receivables Turnover.

C.Inventory Turnover.

D.Total Asset Turnover.

e. What is the change in the gross profit margin from 2012 to 2013? (Select the best choice below.)

A.2.4 %

B.4.8%

C.1.2%

D.6%

f. What is the reason for the change in the gross profit margin in 2013?

The reason for the change in the gross profit margin (in 2013) is: (Select the best choice below.)

A.The cost of the new distribution centers in Canada.

B.The higher cost of items purchased from Canadian suppliers.

C.The cost of stocking the new stores.

D.The lower prices charged at the Canadian stores.

g. Why does the accounts receivable turnover ratio change from 2012 to 2013? (Select the best choice below.)

A.The large number of new store openings.

B.The sale of the credit card business.

C.The decline in sales from 2012 to 2013.

D.More efficient point-of-sales systems in new stores.