Two-Year-Ahead Forecasting of Financial Statement Following are the financial statements of Target Corporation from its FY2015 annual report.

Target Corporation
Consolidated Statements of Operations
		12 Months Ended
$millions		Jan. 30, 2016	Jan. 31, 2015	Feb. 01, 2014
Sales		75,785	72,618	71,279
Cost of sales		53,428	51,278	50,039
Gross margin		22,357	21,340	21,240
Selling, general and administrative expenses		15,081	14,676	14,465
Depreciation and amortization		2,213	2,129	1,996
Gain on sale		(620)	-	(319)
Earnings from continuing operations before interest expense & income taxes		5,683	4,535	5,170
Net interest expense		607	882	1,049
Earnings from continuing operations before income taxes		5,076	3,653	4,121
Provision for income taxes		1,650	1,204	1,427
Net earnings from continuing operations		3,426	2,449	2,694
Discontinued operations, net of tax		42	(4,085)	(723)
Net earnings (loss)		3,468	(1,636)	1,971

Target Corporation
Consolidated Statements of Financial Position
$millions		Jan. 30, 2016	Jan. 31, 2015
Assets
Cash and cash equivalents, inc. short-term investments of $3,008 and $1,520		$4,046	$2,210
Inventory		8,601	8,282
Assets of discontinued operations		322	1,058
Other current assets		1,161	2,074
Total current assets		14,130	13,624
Property and equipment, net		25,617	25,952
Noncurrent assets of discontinued operations		75	717
Other noncurrent assets		840	879
Total assets		$40,662	$41,172
Liabilities and Shareholders' investment
Accounts payable		$7,418	$7,759
Accrued expenses and other current liabilities		4,236	3,783
Current portion of LT debt and other borrowings		815	91
Liabilities of discontinued operations		153	103
Total current liabilities		12,622	11,736
Long-term debt and other borrowings		11,945	12,634
Deferred income taxes		823	1,160
Noncurrent liabilities of discontinued operations		18	193
Other noncurrent liabilities		1,897	1,452
Total noncurrent liabilities		14,683	15,439
Shareholders' investment
Common stock		50	53
Additional paid-in-capital		5,348	4,899
Retained earnings		8,588	9,644
Accumulated other comprehensive loss
Pension and other benefit liabilities		(588)	(561)
Currency translation adjustment and cash flow hedges		(41)	(38)
Total shareholders' investment		13,357	13,997
Total liabilities and shareholders' investment		$40,662	$41,172

We forecast Target's income statement using the following forecast assumptions for both years:

Sales (growth rate)	6%
Cost of sales/Sales	70.5%
Selling, general and administrative expenses/Sales	19.9%
Depreciation and amortization (% of prior year PPE, net)	8.4%
Net interest expense	No change
Provisions for income taxes/Pretax income	32.5%
Assume Target disposes of the net assets from discontinued operations (assets less liabilities) in FY2016 for proceeds of $350 million.

Instructions: Forecast Target's fiscal year ended 2016 and 2017 income statements.

Use the same forecasting assumptions for both years.

Round forecasts to $ millions.

Use rounded figures for subsequent forecast calculations.

Do not use negative signs with your answers in the income statement.

Hint: Forecasted FY2016 gain on sale is computed as proceeds from the disposal of nets assets from discontinued operations minus net assets from discontinued operations ($350 million - $226 million). Forecast $0 gain on sale in FY2017.

Target Corporation
Consolidated Statements of Operations
$ millions		FY2016 Est.	FY2017 Est.
Sales		$Answer	$Answer
Cost of sales		Answer	Answer
Gross margin		Answer	Answer
Selling, general and administrative expenses		Answer	Answer
Depreciation and amortization		Answer	Answer
Gain on sale		Answer	Answer
Earnings from continuing operations before interest and tax		Answer	Answer
Net interest expense		Answer	Answer
Earnings from continuing operations before tax		Answer	Answer
Provisions for income taxes		Answer	Answer
Net earnings		$Answer	$Answer

We forecast Target's financials using the following forecast assumptions for both year:

Inventory/Sales	11.7%
Other current assets/Sales	1.6%
Other noncurrent assets/Sales	1.1%
Accounts payable/Sales	10.1%
Accrued and other current liabilities/Sales	5.7%
Deferred income taxes/Sales	1.1%
Other noncurrent liabilities/Sales	2.6%
CAPEX/Sales	1.90%
Dividends/Net income	40.5%
Common stock	No change
Additional paid-in capital	No change
Accumulated other comprehensive loss	No change
Current Maturities L-T Debt for 2016	$751
Current Maturities L-T Debt for 2017	$2,251
Current Maturities L-T Debt for 2018	$201
Assume Target buys back common stock at $2,000 million in FY2016 and retires the stock. (Hint: Retained earnings are reduced by the cost of the stock buy back.) No stock buybacks happen in FY2017.

Instructions: Forecast Target's fiscal year ended 2016 and 2017 balance sheets.

Use the same forecasting assumptions for both years.

Round forecasts to $ millions.

Use rounded figures for subsequent forecast calculations.

Do not use negative signs with your answers in the income statement.

Target Corporation
Consolidated Statements of Financial Position
$ millions		FY2016 Est.	FY2017 Est.
Assets
Cash and cash equivalents, inc. short-term investments		$Answer	$Answer
Inventory		Answer	Answer
Other current assets		Answer	Answer
Total current assets		Answer	Answer
Property and equipment, net		Answer	Answer
Other noncurrent assets		Answer	Answer
Total assets		$Answer	$Answer
Liabilities and Shareholders' investment
Accounts payable		$Answer	$Answer
Accrued expenses and other current liabilities		Answer	Answer
Current portion of LT debt and other borrowings		Answer	Answer
Total current liabilities		Answer	Answer
Long-term debt and other borrowings		Answer	Answer
Deferred income taxes		Answer	Answer
Other noncurrent liabilities		Answer	Answer
Total noncurrent liabilities		Answer	Answer
Shareholders' investment
Common stock		Answer	Answer
Additional paid-in capital		Answer	Answer
Retained earnings		Answer	Answer
Accumulated other comprehensive loss		Answer	Answer
Total shareholders' investment		Answer	Answer
Total liabilities and shareholders' investment		$Answer	$Answer

QUESTION 2

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Refine Assumptions for Dividend and Retained Earnings Forecast Provided below is FY2016 information for Medtronic PLC.

Medtronic plc
Consolidated Statement of Income
($ millions)		Apr. 29, 2016
Net sales		$29,499
Costs and expenses
Cost of products sold		9,142
Research and development expenses		2,224
Selling, general, and administrative expense		9,469
Special charges (gains), net		70
Restructuring charge, net		290
Certain litigation charges, net		26
Acquisition-related items		283
Amortization of intangiable assets		1,931
Other expense, net		107
Operating profit		5,957
Interest expense, net		955
Income from operations before income taxes		5,002
Provision for income taxes		950
Net income		$4,052

Medtronic plc
Consolidated Balance Sheet
($ millions)		Apr. 29, 2016	Apr. 24, 2015
Current assets
Cash and cash equivalents		$3,042	$5,009
Investments		9,758	14,637
Accounts receivable		5,562	5,112
Inventories		3,473	3,463
Tax assets		697	1,335
Prepaid expenses and other current assets		1,234	1,454
Total current assets		23,766	31,010
Property, plant, and equipment, net		5,007	4,865
Goodwill		41,500	40,530
Other intangiable assets, net		26,899	28,101
Long-term tax assets		1,383	774
Other assets		1,559	1,737
Total assets		$100,114	$107,017
Current liabilities
Short-term borrowing		$1,159	$2,600
Accounts payable		1,709	1,610
Accrued compensation		1,712	1,611
Accrued income taxes		566	935
Deferred tax liabilities		-	119
Other accrued expenses		2,185	2,464
Total current liabilities		7,331	9,339
Long-term debt		30,247	33,752
Long-term accrued compensation		1,759	1,535
Long-term accrued income taxes		2,903	2,476
Long-term deferred tax liabilities		3,729	4,700
Other long-term liabilities		1,916	1,819
Total liabilities		47,885	53,621
Shareholders' equity
Ordinary shares		-	-
Retained earnings		54,097	54,580
Accumulated other comprehensive (loss)/income		(1,868)	(1,184)
Total shareholders' equity		52,229	53,396
Total liabilities and shareholders' equity		$100,114	$107,017

a. Use the financial statements along with the additional information below to forecast retained earnings for FY2017.

Forecasted net income	$5,018 million
Dividends to shareholders' in FY2016	2,194 million

Forecasted retained earnings $Answer million b. Suppose the MD&A section of the Form 10-K and additional guidance from the company reveals the following additional information.

	2017 Est.	2016 Actual	2015 Actual
Dividends per share	$1.74	$1.52	$1.22

At FY2016 year-end (April 29, 2016), the company had approximately 1,400 million shares issued and outstanding. Use this information to refine your forecast of retained earnings for FY2017. Forecasted retained earnings $Answer million