Financial Analysis Paper Zeyuan Liu
Company Profile Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota. Target Corporation operates general merchandise and food discount stores in the United States. It operates as two reportable segments: Retail and Credit Card. The company offers household essentials, including electronics, music, and toys; apparel and accessories; home furnishings as well as seasonal merchandise. It also sells its merchandise under private-label brands, such as Archer Farms, etc. Target Corporation operates in-store amenities, such as Target Caféand Target Clinic as well. Its marketing strategy includes selling its products on its online shopping site Target.com and its network of distribution centers. As of June 2, 2010, it operated 1,740 stores in 49 states and the District of Columbia covering 231,941,000 square feet, and has more than 351,000 employees across the United States. Target Corporation’s main competitors are Wal-Mart Stores Inc. (WMT), and Costco Wholesale Corporation (COST). According to its 10-K annual SEC filing, 88% of shares are held by institutional and mutual fund owners. The five largest shareholders of Target Corporation are Gregg W. Steinhafel, Kathryn A. Tesija, Douglas A. Scovanner, Richard M. Kovacevich and John D. Griffith. Segment Performance Target operates as two reportable segments: Retail and Credit Card segments. According to Target’s 10-K annual SEC filing, Target Corporation’s retail segment contains service of merchandising operations, and associate with online services. Its credit card segment gives qualified clients credit cards, such as Target
Visa and the Target Card. According to Target’s 2009 annual report, the “performance in our Retail Segment was remarkable, as the segment generated the highest EBIT in the Corporation's history. In the Credit Card Segment, disciplined management led to a 29.4 percent increase in segment profit.” This is a very positive signal to its shareholders. Currently all of Target Corporation’s revenues are generated in the United States, and its long-lived assets are primarily located in America. Financial Performance Profitability
According to the ratio analysis, Target Corporation shows a very competitive profitability, given its comparatively higher EPS, ROE and ROA. Almost all the numbers exceed the average for its industry. Although from 2007 to 2008, the profit margin on sales dropped because of the financial crisis, it boomed in 2009. And the EPS is $3.64, a little smaller than its competitor Wal-Mart’s $3.92. Liquidity
According to Target’s annual report, the cash provided by operations was $5,881 million in fiscal year 2009, and its current ratio is 1.63. This means the current assets of the company were more than the current liabilities and shows a positive signal. Cash flow is very important for merchandising company like Target. The acid ratio also shows total quick assets are more than half of its current assets, which means its assets are safe. Asset management
The turnover ratio gives an indication of the company’s ability to move its merchandise. The number shows Target Corporation sells its products very quickly, with an inventory turnover of 6.03 times in 2009. Holding fewer inventories on hand can keep more cash on hand in case of extraordinary incident happens. Solvency
Target faces a moderate risk because 66% of its total assets are financed with debt. Target’s cash debt coverage ratio is 0.18 times which means it is able to pay 18% of its liabilities with its cash during the fiscal year. The good thing is that it holds a larger amount of free cash flow (FCF) in 2009 than 2008, which shows a positive recovery. Summary In conclusion, Target Corporation’s strength is it has a strong profit capability, given the high EPS, ROE and ROA. From the 10-K filling, we can see that the revenue and earnings of Target increased from 2007 to 2009, so we can expect it...
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