Ratio Analysis 3.2

3. Asset management assessment of Target Corporation Inc. A Financial Ratio Analysis of Target Corporation An Asset Management Assessment Assume that you are an existing bondholder of Target Corporation (TGT), a retailer 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 following financial data for Target to complete and conduct your financial ratio analysis. Then answer the questions that follow. Remember, the results of a ratio 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. 2009 2008 Target Corporation Selected Income Statement, Balance Sheet, and Related Data! Income Statement 2010 Sales $65,786,000,000 Less: Cost of goods sold 45,725,000,000 Gross profit $20,061,000,000 Less: Selling, general, and administrative expenses 13,469,000,000 Less: Other expenses Earnings before interest and taxes (EBIT) $5,732,000,000 Less: Interest expense 757,000,000 Earnings before taxes (EBT) $4,975,000,000 Less: Taxes 1,575,000,000 Net income $3,400,000,000 Less: Common dividends paid 609,000,000 Dividends per share $0.87 Balance Sheet Data $63,435,000,000 44,062,000,000 $19,373,000,000 13,078,000,000 1,521,000,000 $4,774,000,000 801,000,000 $3,973,000,000 1,384,000,000 $2,589,000,000 496,000,000 $0.67 $62,884,000,000 44,157,000,000 $18,727,000,000 12,954,000,000 1,609,000,000 $4,164,000,000 866,000,000 $3,298,000,000 1,322,000,000 $1,976,000,000 465,000,000 $0.62 2008 Balance Sheet Data Assets: Cash and marketable securities Receivables Inventory Other current assets Total current assets Net fixed assets Other long-term assets Total assets Liabilities and Equity: 2010 $1,712,000,000 6,153,000,000 7,596,000,000 1,752,000,000 17,213,000,000 25,493,000,000 999,000,000 $43,705,000,000 2009 $2,200,000,000 6,966,000,000 7,179,000,000 2,079,000,000 18,424,000,000 25,280,000,000 829,000,000 $44,533,000,000 $864,000,000 8,084,000,000 6,705,000,000 1,835,000,000 17,488,000,000 25,756,000,000 862,000,000 $44,106,000,000 Accounts payable Accruals Other current liabilities Total current liabilities Long-term liabilities Total debt Common stock Additional paid-in capital $6,625,000,000 3,326,000,000 119,000,000 $10,070,000,000 18,148,000,000 $28,218,000,000 59,000,000 3,311,000,000 12,117,000,000 $15,487,000,000 $43,705,000,000 $6,511,000,000 3,120,000,000 1,696,000,000 $11,327,000,000 17,859,000,000 $29,186,000,000 62,000,000 2,919,000,000 12,366,000,000 $15,347,000,000 $44,533,000,000 $6,337,000,000 2,913,000,000 1,262,000,000 $10,512,000,000 19,882,000,000 $30,394,000,000 63,000,000 2,762,000,000 10,887,000,000 $13,712,000,000 $44,106,000,000 Retained earnings Total Equity Total debt and equity Other Relevant Data Common shares outstanding Total dividends paid Market price per share 704,038,218 $609,000,000 $54.35 744,644,454 $496,000,000 $51.27 752,712,464 $465,000,000 $31.20 Source: Target Corporation Form 10-K, United States Securities and Exchange Commission, 29 Jan. 2011. Web. 20 Jan. 2012. 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.) Target Corporation Asset Management Ratios Inventory turnover ratio 2010 2009 2008 DSO 2010 2009 days days days 2008 Fixed asset turnover ratio 2010 2009 2008 Total asset turnover ratio 2010 2009 2008 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