Question: 228 Chapter 6 The Analysis of Financial Statements 6.18 Target... ||P 228 Chapter 6. The Analysis of Financial Statements 6.18 Target Corporation Case Target Corporation (Target) operates large general merchandise and food discount stores in all of the United States, with the exception of Alaska, Hawaii, and Vermont. The company also has its own credit card operations and operates a fully integrated online business, Target.com. Although the online portion of Target's business is small relative to the overall size of Target, sales are growing at a more rapid pace in the online business com- pared to the in-store sales. The company's philosophy is to offer their cus- tomers a delightful shopping experience and their team members a preferred place to work, and to invest in the communities in which Target conducts business to improve quality of life. Selected information from the 2007 Form 10-K of Target Corporation is on pages 228-237.* Required 1. Analyze the firm's financial statements and supplementary information. Your analysis should include the preparation of common-size financial statements, key financial ratios, and an evaluation of short-term liquidity, operating efficiency, capital structure and long-term solvency, profitability, and market measures. (The financial statement analysis template can be accessed and used at www.prenhall.com/fraser.) PART I: a) Using the template provided, prepare a common-size Consolidated Statements of Financial Position; b) Using the template provided, prepare a common-size Consolidated Statements of Operations; c) Using the template provided, prepare all of the financial ratios including: 1. Liquidity ratios 2. Activity ratios 3. Leverage ratios 4. Profitability ratios TARGET CORPORATIO, CONSOLIDATED STATEMENTS OF FINANCIAL POSITION [ACTUAL CASE DATA: $ in Millions] Februar Februar , 3. 32. 2,450 813 2,450 8,054 6,780 556 1066 18,906 31,982 (7,887) 24,095 813 6,194 6,254 427 1,018 14,706 28,381 (6,950) 21,431 60 148 60 152 1,351 44,560 1,000 37349 ASSETS Current Assets: Cash and cash equivalents Short-term investments Total cash and short-term investments Accounts receivable, net Inventories, net Current deferred taxes Other current assets Total current assets Property, plant, and equipment Less: accumulated depreciation Net property, plant, and equipment Long-term investments Goodwill, net Other intangibles, net Other deferred taxes Other assets Total assets IABILITIES Current Liabilities: Accounts payable Short-term debt Current portion of long-term debt Accrued liabilities Income taxes payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes payable Other deferred liabilities Other liabilities Total liabilities Minority interest STOCKHOLDERS' EQUITY Preferred stock Common stock, par value plus additional paid-in capital Retained earnings (accumulated deficit) Treasury stock Accumulated other comprehensive income (loss) Other stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity 6,721 6,575 1.964 3,097 1,362 3,180 11,782 15,126 470 11,117 8,675 577 1875 1.347 21,716 29,253 2,724 12,761 2,459 13,417 (178) (243) 15,307 44,560 15,633 37349 TARGET CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION COMMON SIZE FINANCIAL STATEMENT: $ in Millions Februar Februar 2. 3. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ASSETS Current Assets: Cash and oash equivalents Short-term investments Total cash and short-term investments Accounts receivable, net Inventories, net Current deferred taxes Other current assets Total ourrent assets Property, plant, and equipment Less: accumulated depreciation Net property, plant, and equipment Long-term investments Goodwill, net Other intangibles, net Other deferred taxes Other assets Total assets LIABILITIES Current Liabilities: Accounts payable Short-term debt Current portion of long-term debt Accrued liabilities Income taxes payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes payable Other deferred liabilities Other liabilities Total liabilities Minority interest STOCKHOLDERS' EQUITY Preferred stook Common stock, par value plus additional paid-in capital Retained earnings (acoumulated deficit) Treasury stook Accumulated other comprehensive income (loss) Other stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% TARGET CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS [ACTUAL CASE DATA: S in Millions] 2007 2006 2005 Sales Credit Card Revenues Total Revenues Cost of Sales Selling, General and Administrative Expenses Credit Card Expenses Depreciation and Amortization Earnings Before Interest Expense and Income Taxes Net Interest Expense Earnings Before Income Taxes Provision for Income Taxes Net Earnings 61,471 1.896 63,367 41,895 13,704 837 1,659 5,272 647 4,625 1,776 2,849 57,878 1,612 59,490 39,399 12,819 707 1,496 5,069 572 4,497 1,710 2,787 51,271 1,349 52,620 34,927 11,185 776 1,409 4.323 463 3,860 1,452 2,408 Basic Earnings Per Share Diluted Earnings Per Share 3.37 3.35 3.23 3.21 2.73 2.71 ding: Weighted average common shares outs Basic Diluted 845.4 850.8 861.9 868.6 882 889.2 End of year stock price Dividends per share 57.05 0.54 62.03 0.46 54.17 0.38 TARGET CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS [COMMON SIZE FINANCIAL STATEMENT: S in Millons] 2007 2006 2005 Sales Credit Card Revenues Total Revenues Cost of Sales Selling, General and Administrative Expenses Credit Card Expenses Depreciation and Amortization Earnings Before Interest Expense and Income Taxes Net Interest Expense Earnings Before Income Taxes Provision for Income Taxes Net Earnings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Basic Earnings Per Share Diluted Earnings Per Share Weighted average common shares outstanding: Basic Diluted 845.4 850.8 861.9 868.6 882 889.2 End of year stock price Dividends per share 57.05 0.54 62.03 0.46 54.17 0.38 2 3 TARGET CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS JACTUAL CASE DATA: $ in Millions 4 5 6 2007 2006 2005 2,849 2,787 2,408 10 12 1,659 73 (70) 481 28 52 1,496 99 (201) 380 53 (35) 1,409 93 (122) 466 70 (50) (602) (525) (139) 101 111 62 124 (226) (431) (30) 5 435 430 100 (244) (454) (28) (24) 489 421 2 15 4,451 (79) 4.125 4,862 7 Operating Activities & Net Earnings Reconciliation to Cash Flow Depreciation and amortization 11 Share-based compensation expense Deferred income taxes 13 Bad debt provision 14 Loss on disposal of property and equipment, net 15 Other non-cash items affecting earnings 16 Changes in operating accounts related to cash: 17 Accounts receivable originated at Target 18 Inventory 19 Other Ourrent assets 20 Other noncurrent assets 21 Accounts payable 22 Accrued and other current liabilities Other noncurrent liabilities 24 Other 25 Cash flow provided by operations z& Investing Activities 27 Expenditures for property, plant and equipment 28 Proceeds from disposal of property and equipment 29 Change in accounts receivable originated at third partie: 30 Other investements 31 Cash flow required for investing activities 32 Financing Activities Additions to short-term notes payable 34 Reductions of short-term notes payable 35 Additions to long-term debt 36 Reductions of long-term debt Dividends paid Repurchase of stook Premiums on call options Stock option exercises and related tax benefit Other 42 Cash flow provided'(required for) financing activities 43 Net increasel decrease) in cash and cash equivalents 44 Cash and cash equivalents at beginning of year 45 Cash and cash equivalents at end of year (4,369) 95 (1,739) (182) (6,195) (3.928) 62 (683) (144) (4.693) (3.388) 58 (819) (4.149) 1,256 (1155) (380) (901) 913 (527) (318) (1,197) 37 39 1,000 (500) 7,617 (1,326) (442) (2.477) (331) 210 (44) 3,707 1,637 813 2,450 40 41 181 (5) (1,004) (835) 1,648 813 231 (0) (899) (597) 2,245 1,648 46 2007 2006 Liquidit Ratios. Current ratio Quick ratio Cash flow liquidity Average collection period Days inventory held Days payable outstanding Current assets Current liabilities Current assets - Inventory! Current liabilities Cash+ Marketable Securites + Cash from operations / Current Accounts receivable / Average daily sales (Sales/365) Inventory / Average daily cost of sales (COGS/365) Accounts payable ? Average daily cost of sales (COGS/365) Average collection period + Days inventory held - Days payable outstanding Cash oonversion cycle Net Sales Accounts receivable ActivitRatios. Accounts receivable turnover Inventory turnover Payables turnover Cost of goods sold/Inventory Cost of goods sold / Accounts payable Net Sales / Net propery, plant, and equipment Net Sales / Total assets Fixed asset turnover Total asset turnover Leverage Ratios: Debt ratio Long-term debt to total capitalization Debt to equity Financial leverage (FL) Times interest earned Total Liabilities / Total assets Long-term debt / Long-term debt Stockholders' equity Total liabilities i Stockholders' equity Total assets i Stockholders' Operating profit / Interest Cash from operations + Interest paid + Taxes paid / Interest paid Operating profit + Rent expenser Interest expense. Rent expense Cash from operations / Capital expenditures Debt repayments. Dividents paid Cash interest coverage Fixed charge coverage Cash flow adequacy Profitabilit Ratios. Gross profit margin Operating profit margin Net profit margin Cash flow margin Return on assets (ROA) or Return on investment (RON) Return on equity (ROE) Cash return on assets Gross profit Net Sales Operating profit / Net Sales Net profit / Net Sales Cash from operations / Net Net profit / Total assets Net profit / Stockholders' equity Cash from operations / Total Question: 228 Chapter 6 The Analysis of Financial Statements 6.18 Target... ||P 228 Chapter 6. The Analysis of Financial Statements 6.18 Target Corporation Case Target Corporation (Target) operates large general merchandise and food discount stores in all of the United States, with the exception of Alaska, Hawaii, and Vermont. The company also has its own credit card operations and operates a fully integrated online business, Target.com. Although the online portion of Target's business is small relative to the overall size of Target, sales are growing at a more rapid pace in the online business com- pared to the in-store sales. The company's philosophy is to offer their cus- tomers a delightful shopping experience and their team members a preferred place to work, and to invest in the communities in which Target conducts business to improve quality of life. Selected information from the 2007 Form 10-K of Target Corporation is on pages 228-237.* Required 1. Analyze the firm's financial statements and supplementary information. Your analysis should include the preparation of common-size financial statements, key financial ratios, and an evaluation of short-term liquidity, operating efficiency, capital structure and long-term solvency, profitability, and market measures. (The financial statement analysis template can be accessed and used at www.prenhall.com/fraser.) PART I: a) Using the template provided, prepare a common-size Consolidated Statements of Financial Position; b) Using the template provided, prepare a common-size Consolidated Statements of Operations; c) Using the template provided, prepare all of the financial ratios including: 1. Liquidity ratios 2. Activity ratios 3. Leverage ratios 4. Profitability ratios TARGET CORPORATIO, CONSOLIDATED STATEMENTS OF FINANCIAL POSITION [ACTUAL CASE DATA: $ in Millions] Februar Februar , 3. 32. 2,450 813 2,450 8,054 6,780 556 1066 18,906 31,982 (7,887) 24,095 813 6,194 6,254 427 1,018 14,706 28,381 (6,950) 21,431 60 148 60 152 1,351 44,560 1,000 37349 ASSETS Current Assets: Cash and cash equivalents Short-term investments Total cash and short-term investments Accounts receivable, net Inventories, net Current deferred taxes Other current assets Total current assets Property, plant, and equipment Less: accumulated depreciation Net property, plant, and equipment Long-term investments Goodwill, net Other intangibles, net Other deferred taxes Other assets Total assets IABILITIES Current Liabilities: Accounts payable Short-term debt Current portion of long-term debt Accrued liabilities Income taxes payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes payable Other deferred liabilities Other liabilities Total liabilities Minority interest STOCKHOLDERS' EQUITY Preferred stock Common stock, par value plus additional paid-in capital Retained earnings (accumulated deficit) Treasury stock Accumulated other comprehensive income (loss) Other stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity 6,721 6,575 1.964 3,097 1,362 3,180 11,782 15,126 470 11,117 8,675 577 1875 1.347 21,716 29,253 2,724 12,761 2,459 13,417 (178) (243) 15,307 44,560 15,633 37349 TARGET CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION COMMON SIZE FINANCIAL STATEMENT: $ in Millions Februar Februar 2. 3. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ASSETS Current Assets: Cash and oash equivalents Short-term investments Total cash and short-term investments Accounts receivable, net Inventories, net Current deferred taxes Other current assets Total ourrent assets Property, plant, and equipment Less: accumulated depreciation Net property, plant, and equipment Long-term investments Goodwill, net Other intangibles, net Other deferred taxes Other assets Total assets LIABILITIES Current Liabilities: Accounts payable Short-term debt Current portion of long-term debt Accrued liabilities Income taxes payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes payable Other deferred liabilities Other liabilities Total liabilities Minority interest STOCKHOLDERS' EQUITY Preferred stook Common stock, par value plus additional paid-in capital Retained earnings (acoumulated deficit) Treasury stook Accumulated other comprehensive income (loss) Other stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% TARGET CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS [ACTUAL CASE DATA: S in Millions] 2007 2006 2005 Sales Credit Card Revenues Total Revenues Cost of Sales Selling, General and Administrative Expenses Credit Card Expenses Depreciation and Amortization Earnings Before Interest Expense and Income Taxes Net Interest Expense Earnings Before Income Taxes Provision for Income Taxes Net Earnings 61,471 1.896 63,367 41,895 13,704 837 1,659 5,272 647 4,625 1,776 2,849 57,878 1,612 59,490 39,399 12,819 707 1,496 5,069 572 4,497 1,710 2,787 51,271 1,349 52,620 34,927 11,185 776 1,409 4.323 463 3,860 1,452 2,408 Basic Earnings Per Share Diluted Earnings Per Share 3.37 3.35 3.23 3.21 2.73 2.71 ding: Weighted average common shares outs Basic Diluted 845.4 850.8 861.9 868.6 882 889.2 End of year stock price Dividends per share 57.05 0.54 62.03 0.46 54.17 0.38 TARGET CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS [COMMON SIZE FINANCIAL STATEMENT: S in Millons] 2007 2006 2005 Sales Credit Card Revenues Total Revenues Cost of Sales Selling, General and Administrative Expenses Credit Card Expenses Depreciation and Amortization Earnings Before Interest Expense and Income Taxes Net Interest Expense Earnings Before Income Taxes Provision for Income Taxes Net Earnings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Basic Earnings Per Share Diluted Earnings Per Share Weighted average common shares outstanding: Basic Diluted 845.4 850.8 861.9 868.6 882 889.2 End of year stock price Dividends per share 57.05 0.54 62.03 0.46 54.17 0.38 2 3 TARGET CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS JACTUAL CASE DATA: $ in Millions 4 5 6 2007 2006 2005 2,849 2,787 2,408 10 12 1,659 73 (70) 481 28 52 1,496 99 (201) 380 53 (35) 1,409 93 (122) 466 70 (50) (602) (525) (139) 101 111 62 124 (226) (431) (30) 5 435 430 100 (244) (454) (28) (24) 489 421 2 15 4,451 (79) 4.125 4,862 7 Operating Activities & Net Earnings Reconciliation to Cash Flow Depreciation and amortization 11 Share-based compensation expense Deferred income taxes 13 Bad debt provision 14 Loss on disposal of property and equipment, net 15 Other non-cash items affecting earnings 16 Changes in operating accounts related to cash: 17 Accounts receivable originated at Target 18 Inventory 19 Other Ourrent assets 20 Other noncurrent assets 21 Accounts payable 22 Accrued and other current liabilities Other noncurrent liabilities 24 Other 25 Cash flow provided by operations z& Investing Activities 27 Expenditures for property, plant and equipment 28 Proceeds from disposal of property and equipment 29 Change in accounts receivable originated at third partie: 30 Other investements 31 Cash flow required for investing activities 32 Financing Activities Additions to short-term notes payable 34 Reductions of short-term notes payable 35 Additions to long-term debt 36 Reductions of long-term debt Dividends paid Repurchase of stook Premiums on call options Stock option exercises and related tax benefit Other 42 Cash flow provided'(required for) financing activities 43 Net increasel decrease) in cash and cash equivalents 44 Cash and cash equivalents at beginning of year 45 Cash and cash equivalents at end of year (4,369) 95 (1,739) (182) (6,195) (3.928) 62 (683) (144) (4.693) (3.388) 58 (819) (4.149) 1,256 (1155) (380) (901) 913 (527) (318) (1,197) 37 39 1,000 (500) 7,617 (1,326) (442) (2.477) (331) 210 (44) 3,707 1,637 813 2,450 40 41 181 (5) (1,004) (835) 1,648 813 231 (0) (899) (597) 2,245 1,648 46 2007 2006 Liquidit Ratios. Current ratio Quick ratio Cash flow liquidity Average collection period Days inventory held Days payable outstanding Current assets Current liabilities Current assets - Inventory! Current liabilities Cash+ Marketable Securites + Cash from operations / Current Accounts receivable / Average daily sales (Sales/365) Inventory / Average daily cost of sales (COGS/365) Accounts payable ? Average daily cost of sales (COGS/365) Average collection period + Days inventory held - Days payable outstanding Cash oonversion cycle Net Sales Accounts receivable ActivitRatios. Accounts receivable turnover Inventory turnover Payables turnover Cost of goods sold/Inventory Cost of goods sold / Accounts payable Net Sales / Net propery, plant, and equipment Net Sales / Total assets Fixed asset turnover Total asset turnover Leverage Ratios: Debt ratio Long-term debt to total capitalization Debt to equity Financial leverage (FL) Times interest earned Total Liabilities / Total assets Long-term debt / Long-term debt Stockholders' equity Total liabilities i Stockholders' equity Total assets i Stockholders' Operating profit / Interest Cash from operations + Interest paid + Taxes paid / Interest paid Operating profit + Rent expenser Interest expense. Rent expense Cash from operations / Capital expenditures Debt repayments. Dividents paid Cash interest coverage Fixed charge coverage Cash flow adequacy Profitabilit Ratios. Gross profit margin Operating profit margin Net profit margin Cash flow margin Return on assets (ROA) or Return on investment (RON) Return on equity (ROE) Cash return on assets Gross profit Net Sales Operating profit / Net Sales Net profit / Net Sales Cash from operations / Net Net profit / Total assets Net profit / Stockholders' equity Cash from operations / Total
