Financial Statement are available at: www.nasdaq.com/quotes/company-financials.a
ID: 2600609 • Letter: F
Question
Financial Statement are available at: www.nasdaq.com/quotes/company-financials.aspx. Enter TGT (Target) as symbol and submit to get the financial statements.
Research and obtain Target corporation (retailer) last few years (at least two) financial statements (information that is available to the public online) in order to answer the following questions:
A. Based on the information that you have gathered, explain the changes in financial ratios. Has anything changed in the few years of financial statements that you have obtained?
i. What are the reasons for these changes?
B. Based on the information you have gathered, analyze the changes in the financial reports regarding cash. Be sure to examine the statement of cash flows.
i. What are the reasons for these changes?
C. Based on the information you have gathered, analyze the changes in the financial reports regarding the account balance.
i. What are the reasons for these changes?
D. Describe the type of valuation method that Target Corporation uses and explain why it uses this method.
i. What are the benefits of this method?
E. Based on industry trends, future plans of Target Corporation, and the information you have gathered, predict how Target Corporation will perform in the following year compared to competitors.
Support your arguments with at le ast three peer-reviewed sources cited in APA format
Financial Statement are available at: www.nasdaq.com/quotes/company-financials.aspx. Enter TGT (Target) as symbol and submit to get the financial statements.
The financial ratios that need to be analysed are ccurrent ratio, quick ratio and cash ratio.
Explanation / Answer
II. Analysis of Financial Statements: For this part of the assessment, you will continue your financial analysis paper. You will need to research your chosen company and obtain the last few years (at least two) of financial statements (information that is available to the public online) in order to answer the following questions:
Retrieved from http://www.marketwatch.com/investing/stock/tgt/financials
Looking at the sales from 2012 – 2015 there is a small percentage of change even though the monetary value seems high. For example from 2012 to 2013 there is a 5% rise in sales and a 5% rise in COGS. From 2013 to 2014 there is a 3% drop in sales and a 2% drop in COGS. From 2014 to 2015 there is a 2% rise in sales and a 2.5% rise in COGS. Looking at the Gross Income it is evident that Target is able to keep their yearly sales mostly stable and continue to make money.
Some of the reasons for these small changes are due to Targets competitive pricing. Over the years they continue to price match with their competitors, especially their largest competitor, Walmart. This can help get consumers in the door and allow them to buy more once they are there. Another thing that helps them keep consumers in the door is that they offer a lot of different products at different price points.
There are many different ways to analyze the financial statements. One way is to use common size analysis. This can be done by analyzing the total assets (long and short term) or the total liabilities on the balance sheet. This allows you to do a line by line analysis. For example if I am specifically looking at cash on the balance sheet, I would take the cash total and divide it by the total assets. Common size analysis can also be used with the income statement and is usually done to calculate the companies operating margins.
Year
2012
2013
2014
2015
Cash
600M
654M
667M
690M
Total Assets
46.63B
48.16B
44.55B
41.4B
Common Size
1.29%
1.36%
1.50%
1.67%
Another one to look at is the Return on Equity. This is done by taking the net income and dividing it by the total shareholders equity. This helps to measure the shareholders’ investment return. It helps them see if the company is considered profitable.
Year
2012
2013
2014
2015
Net income
2.93B
3B
2.69B
2.45B
Shareholder Equity
15.82B
16.56B
16.23B
14B
ROE
18.5%
18.1%
16.6%
17.5%
Two other common ways to analyze their numbers is with the Debt-to-Asset ratio and the Debt-to-Equity ratio. The Debt-to-Asset ratio looks at how much of the assets are being financed with debt. This helps a company see its potential risk. The lower the ratio, the better. If the ratio is 1 or above, the company needs to look at where it is spending its money or how to make more money. The formula it total liabilities / total assets. The Debt-to-Equity ratio is used to look at a company’s financial leverage. The formula for this is total liabilities / total common equity.
Year
2012
2013
2014
2015
Total Liabilities
30.81B
31.61B
28.32B
27.41B
Total Assets
46.63B
48.16B
44.55B
41.4B
Debt-to-asset
0.65
0.656
0.636
0.662
Year
2012
2013
2014
2015
Total Liabilities
30.81B
31.61B
28.32B
27.41B
Total Common Equity
15.82B
16.56B
16.23B
14B
Debt-to-equity
1.94
1.9
1.74
1.95
As you can see Target does a good job of keeping their ratios very close from year to year. One reason for that could be that Target’s management does a great job of analyzing the numbers and preparing for the years to come based on those numbers. Due to their Debt-to-Equity ratio I would recommend that Target look at those numbers and see if they can make some changes.
The financial reports regarding the account balance don’t have a lot of changes over the last few years. I did notice that the total receivables have gone down over the last year and that the inventory has gone up. Since sales haven’t changed too much that could be a good thing. The total assets were higher in 2012 and 2013 and then went down in 2014. They came back up in 2015 and are expected to rise slightly in 2016.
One reason for the change in receivables could be that people are taking out less credit than before. The increase in inventory is great for Target since as I mentioned above their sales and COGs have gone up over the last year. Also mentioned above 2014 seems to be a year that Target had to reevaluate their numbers and close stores based on sales. I think that is why their numbers went down in 2014 and back up in 2015 after they began to make the changes.
Another reason the their us such a large change in the receivables is because in 2014 Target sold their entire credit card section (including the receivables) to TD Bank Group. This allowed Target to no longer have to handler their credit card portfolio. This sale also allowed Target to get a large pre-tax gain.
D. Describe the type of valuation method that your company uses and explain why it uses this method.
Target Corporation uses the LIFO (last in, first out) method. Target uses the lower of market or LIFO to state the cost of its inventory. It allows the company to get rid of its higher priced inventory firstso thatit is less likely to have to lower the costs to match market value. They use the cost-to-retail ratio to help value their current inventory.
What are the benefits of this method?
LIFO has many benefits for companies in general especially a large one like Target. It allows the company to take tax breaks during times of inflation. It also allows company to get rid of their newest inventory (often the highest price) first so that they can keep their costs down on the remaining inventory. It also helps keep the costs of the items closely matched to the current revenues.
E. Based on industry trends, future plans of your company, and the information you have gathered, predict how your company will perform in the following year compared to competitors.
Based on the information from the last few years and the market in which Target operates, it seems to me that Target will continue to be at the top of the market. Super Targets are the best competition for Walmart which is its greatest competitor. The addition of higher end clothing to Target stores will also help them continue to do better than store like Kmart.
Year
2012
2013
2014
2015
Cash
600M
654M
667M
690M
Total Assets
46.63B
48.16B
44.55B
41.4B
Common Size
1.29%
1.36%
1.50%
1.67%
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