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		76,285	72,618	71,279
Cost of sales		53,781	51,278	50,039
Gross margin		22,504	21,340	21,240
Selling, general and administrative expenses		15,181	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		5,730	4,535	5,170
Net interest expense		607	882	1,049
Earnings from continuing operations before income taxes		5,123	3,653	4,121
Provision for income taxes		1,665	1,204	1,427
Net earnings from continuing operations		3,458	2,449	2,694
Discontinued operations, net of tax		42	(4,085)	(723)
Net earnings (loss)		3,500	(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		25,717	25,952
Noncurrent assets of discontinued operations		75	717
Other noncurrent assets		840	879
Total assets		$40,762	$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		8,688	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		13,457	13,997
Total liabilities and shareholders' investment		$40,762	$41,172

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

Sales (growth rate)	8%
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 net assets from discontinued operations minus net assets from discontinued operations ($350 million - $226 million). Forecast $0 for gain on sale in FY2017.

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.

Target Corporation Consolidated Statements of Operations $ millions FY2016 Est. FY2017 Est. Sales $ 82,388 ~ $ 88,979 V Cost of sales 58,084 62,730 Gross margin 24,304 26,249 V Selling, general and administrative expenses 16,395 V 17,707 v Depreciation and amortization 2,160 ~ 2,080 X Gain on sale 124 ~ 07 Earnings from continuing operations before interest and tax 5,873 6,462 x Net interest expense 607 607 Earnings from continuing operations before tax 5,266 V 5,855 x Provisions for income taxes 1,711 ~ 1,650 X Net earnings $ 3,555 $ 4,205 X 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 $ 4,319 x $ 4,811 x Inventory 9,639 10,411 Other current assets 1,318 1,424 Total current assets 15,277 X 16,645 x Property and equipment, net 24,760 24,217 x Other noncurrent assets 906 979 Total assets $ 40,943 * $ 41,841 x Liabilities and Shareholders' investment Accounts payable 8,321 $ 8,987 Accrued expenses and other current liabilities 4,696 5,072 Current portion of LT debt and other borrowings 2,315 265 Total current liabilities 15,332 14,324 v Long-term debt and other borrowings 9,694 9,493 Deferred income taxes 906 979 Other noncurrent liabilities 2,142 2,313 Total noncurrent liabilities 12,742 12,785 Shareholders' investment Common stock 50 50 Additional paid-in capital 5,348 5,348 Retained earnings 8,335 x 10,375 x Accumulated other comprehensive loss (629) X (629) X Total shareholders' investment 13,104 * 15,144 x Total liabilities and shareholders' investment $ 41,179 * $ 42,253 %