Comprehensive Financial Analysis of Target Corporation's Performance

This report presents a comprehensive financial analysis of Target Corporation, evaluating its performance through various financial ratios. The analysis includes calculations and interpretations of profitability (operating margin, profit margin, ROA, ROE), debt management (debt ratio, equity multiplier), liquidity (current ratio, quick ratio), asset management (asset turnover, inventory turnover, receivables turnover), and market value (P/E ratio, DuPont system). The report compares Target's performance to industry averages, providing insights into its strengths and weaknesses. Recommendations include cost center establishment, dividend policy revision, long-term debt adoption, improved financial management, and consideration of external environmental factors. Comparative analyses with competitors like Kroger, Costco, Wal-Mart, and Whole Foods are also included. The report concludes with suggestions for improvement and strategic adjustments to enhance Target's financial health and market position.

Running Head: Analysis of Target Corporation
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Running Head: Analysis of Target Corporation
Introduction
The Target corporation company mainly offers merchandise at discount price to the customer from
various stores located in Minnesota. The company focuses to deliver a good shopping experience to
their customer, supported by their supply chain and technology. Our ability to deliver a preferred
shopping experience to our guests is supported by our supply chain (Irvine Lapsley, 2016). Company
operated in single segment designed to enable the customer to buy products seamless in store though
various digital channels.
Solution-a
i. Profitability:
Operating margin = EBIT/Sales
Operating margin = $4,969/$69,495
Operating margin = 64.71%
Profit margin = Net income/Sales
Profit margin = $2,737/$69,495
Profit margin = 3.94%
Return on assets (ROA) = Net income/Total assets
Return on assets (ROA) = $2,737/$40,262
Return on assets (ROA) = 6.80%

Running Head: Analysis of Target Corporation
Return on equity (ROE) = Net income/Total common equity
Return on equity (ROE) = $2,737/$12,957
Return on equity (ROE) = 0.22
ii. Debt Management
Debt ratio = (Total Assets – Total Owner’s Equity)/Total assets
Debt ratio = ($40,262 - $12,975)/$40,262
Debt ratio = 0.68
Equity Multiplier = Total Assets /Total Owner’s Equity
Equity Multiplier = $40,262/$12,957
Equity Multiplier = 3.11
iii. Liquidity
Current ratio = Current Asset/ Current liabilities
Current ratio = $14,130/$12,622
Current ratio = 1.12
Quick ratio = (Current assets – Inventory)/Current liabilities
Quick ratio = ($14,130 – $8,601)/$12,622
Quick ratio = 0.44
iv. Asset Management
Asset Turnover=Sales/Average Total Assets
Asset Turnover= $69,495/$38,846.5
Asset Turnover = 1.79
Inventory turnover = Cost of sales/ Average Inventory
Inventory turnover = $48,872/ ($8,309 + $8,601)/2

Running Head: Analysis of Target Corporation
Inventory turnover = 5.78
Receivables turnover = Total revenue/ Average receivables
Receivables turnover = $69,495/ ($749 + $779)/2
Receivables turnover = 90.96
V. Market Value
Price/earnings (P/E) ratio = Price per share/Earnings per share
Price/earnings (P/E) ratio = $82.28/4.62
Price/earnings (P/E) ratio = 17.81
DuPont system
ROE = Profit Margin*Total asset turnover*Equity multiplier
ROE = 3.94%*1.79*3.11
ROE = 21.93%
Solution-b
Return on Equity Analysis
The return on equity is important profitability ratio that reflects the company ability to generate the
profit from its shareholders.
The above ratio analysis shows the return on equity 0.22, this reflects that for every dollar of the
shareholder equity earned $0.22.
Current Ratio Analysis
The current ratio shows the company ability to pay their short term liability. If the current ratio of the
company is 2 then company short term ability is good (M Y Khan, P. K Jain, 2014). The ratio analysis
shows the current ratio 1.12.

Running Head: Analysis of Target Corporation
Quick Ratio Analysis
The quick ratio helps in calculating the company ability to pay their current liabilities with the help of
quick assets. The ratio analysis shows the quick ratio 0.44.
Inventory Turnover Analysis
The inventory turnover ratio shows the ability of the company in terms of managing their inventory. The
ratio analysis shows the inventory turnover ratio 5.78.
Debt Ratio Analysis
The debt ratio shows the percentage of finance, company getting from their investors. The ratio analysis
shows the inventory turnover ratio 0.68.
Receivables turnover Analysis
The receivable ratio shows the how efficient a firm using their assets. The above calculation of
receivable ratio reflects that the company able to use their assets in effective manner.
Solution-c
The ratio averages for your industry to evaluate Target’s performance are as follows.
Target Corporation Industry
Gross margin 29.26% 30.48%
Operating margin 6.46% 7.05%
Pretax margin 5.50% 5.80%
Net Profit margin 3.79% 3.85%
P/E Ratio 16.39 24.59
Return on Equity 23.85% 19.88%
Return on Assets 6.68% 6.97%
Quick Ratio 0.27 0.41
Current Ratio 0.96 1.46

Running Head: Analysis of Target Corporation
Asset Turnover 1.76 1.75
Inventory Turnover 4.78 5.55
Solution-d
The profit margin of the company is considered to be above average in comparison to the objectives.
The target corporation also looking for achieves the goals of last financial year. However company is well
positioned when compared to the average margin for the industry, an indication that they could either
be having greater revenue or less expense (J. Van Horne, Prof John M Wachowicz JR, 2015). The
company return on equity is encouraging this is an indication that the company is wise. The
expenditures are greatly reduced. When it comes to the debt management, the company has
undertaken a policy of 17% leverage. They seem to have taken the course that most of the other
companies in the industry have taken.
The times interest earned are very appealing for the company in question. This is a clear indication that
the company does not take loans that it is not able to service which is an encouraging trait. As much as
there is no industry average, there is other companies that are not able to service their debts and they
are disadvantaged in that they are not able to cater well for the company.
Solution-e
Solvency Analysis Kroger Costco Wal-Mart Whole foods
Leverage Ratio 7.13 2.20 2.41 2.43
Debt Ratio 58 19.80 51.5 36
Long-Term Debt to Equity 126.99 19.77 67 48.56
Activity Analysis Kroger Costco Wal-Mart Whole foods
Asset Turnover .30 3.40 2.44 2.30
Accounts Receivable Turnover 90.70 101.43 251.1

Running Head: Analysis of Target Corporation
Inventory Turnover 12.30 9 8.6
DuPont ROE NPM TAT EM ROE
Kroger 5.53% .30 2.37 .0393
Costco 1.67% 3.4 1.20 .0681
Wal-Mart 3.54% 2.4 1.53 .13
Whole foods 3.81% 1.5 2.10 .12
Solution-f
Having carried out a research on the market in general, the technology industry is one of the fastest
growing in the economies of different countries worldwide. This is due to the increased globalization
and use of technology. The company can benefit a lot from concentrating only on the technology
industry. The insight and competition is enough to foster growth (M Y Khan, P. K Jain, 2014). The food
and beverage industry does not put technology into great use. That could give them an added
advantage.
The company has disregarded influence from the external environment which is not good at all, causing
it to lag behind in terms of innovation and implementation of many of the new legislation and
development of new products. In terms of deviation, the industry is actually performing worse than the
individual company. The marketability of the company, as deducted from an online survey of the
customers, needs to be worked on through means such as advertisement as it is greatly faltering.

Running Head: Analysis of Target Corporation
Solution-g
1. Establishment of cost centers: This will ensure that the company is able to monitor its expenses
in a better manner which is one of the ways that profitability can be increased.
2. Revision of the dividends payout policy: This will attract more investors when it is lucrative.
Currently any additional equity would come in handy in expanding the business.
3. Opting for long term debts instead of the short term liabilities: This helps the company to use
the money that is at its disposal more wisely. Current liabilities mostly come in small amounts
which end up not being helpful at all. The long term liabilities could help stabilize and even
expand the business.
4. The operations, marketing and development aspects of the company seem to be well catered
for but the financial sector has been highly neglected. More effort should be put into the
financial management too. Skilled and competent financial officers should be recruited to deal
with the situation (M Y Khan, P. K Jain, 2014).
5. The company has concentrated too much on the internal environment. Considering factors in
the external environment will make the company more sensitive to the changes in the market
and even manage a healthy competition with its competitors.

Running Head: Analysis of Target Corporation
References:
Irvine Lapsley. (2016). Financial Accountability & Management: Wiley
J. Van Horne, Prof John M Wachowicz JR. (2015). Fundamentals of Financial Management: Prentice Hall
M Y Khan, P. K Jain. (2014). Financial Management: McGraw-Hill Education