Whitney Milford
MBA MGMT 510- Financial Accounting Final Project
Due Week #6 100 pts
Company History/Background
Target Corporation was founded by a man named George Draper Dayton in 1902. When the
company was first introduced, it was known as Dayton Dry Goods Company and was later
changed to what it is known as today, Target Corporation. In the 1920’s, the freighthandlers went on a strike preventing goods to be shipped to the store. Dayton decided to use
airplanes to transport the goods across the country to overcome this standstill. When the
planes arrived they are driven through the streets to reach the factory and many onlookers
immediately purchased goods from there. Not having to rely on one source or delivery
helped the company tremendously.
When George died in 1938, his son George N. Dayton was named president of the company.
Several years later, in 1950, George N. passed away leaving the company to his son Donald
C. Dayton. As the years went on, Dayton Company was looking for new ways of
strengthening their relationships with their customers. They came across the opportunity of
switching over to a discount store. This was a risky venture because it moved the company
away from their position as a family-run department store to a much larger discount store.
In 1962, the company was thinking of a name for their new and improved discount store;
they came up with the name “Target” and thought of the classic bulls-eye for their logo. The
reasoning behind their choice was, “As a marksman's goal is to hit the center bulls-eye, the
new store would do much the same in terms of retail goods, services, commitment to the
community, price, value and overall experience” (Target through the Years). Target had
their Initial Public Offering on October 18, 1967 and in 1969 the Dayton Corporation joined
the J.L. Hudson Company to create Dayton-Hudson Corporation.
Target continued to expand their company to many locations. Their technology advanced
and by 1995 they had their own credit card known as the “Target Guest Card”. The year
1999 was a big year for Target introducing the Bullseye English Bull Terrier in
commercials, the first gift cards, the purchase of the Associated Merchandising Corporation,
the introduction of the Sonia Kashuk Professional Makeup Collection, moving online, and
the introduction of their exclusive line of products.
Financial/Performance Analysis:
Balance Sheet
28-Jan-12
29-Jan-11
Cash and cash equivalents, including short-term investments of
$194 and $1,129
794.00
1712.00
Credit card receivables, net of allowance of $430 and $690
5927.00
6153.00
Assets
Inventory
7918.00
7596.00
Other current assets
1810.00
1752.00
16449.00
17213.00
6122.00
5928.00
26837.00
23081.00
Fixtures and equipment
5141.00
4939.00
Computer hardware and software
2468.00
2533.00
963.00
567.00
(12382.00)
(11555.00)
29149.00
25493.00
1032.00
999.00
46630.00
43705.00
Accounts payable
6857.00
6625.00
Accrued and other current liabilities
3644.00
3326.00
Unsecured debt and other borrowings
3036.00
119.00
750.00
–
14287.00
10070.00
13447.00
11653.00
250.00
3954.00
Deferred income taxes
1191.00
934.00
Other noncurrent liabilities
1634.00
1607.00
16522.00
18148.00
56.00
59.00
3487.00
3311.00
12959.00
12698.00
(681.00)
(581.00)
Total shareholders’ investment
15821.00
15487.00
Total liabilities and shareholders’ investment
46630.00
43705.00
Total current assets
Property and equipment
Land
Buildings and improvements
Construction-in-progress
Accumulated depreciation
Property and equipment, net
Other noncurrent assets
Total assets
Liabilities and shareholders’ investment
Nonrecourse debt collateralized by credit card receivables
Total current liabilities
Unsecured debt and other borrowings
Nonrecourse debt collateralized by credit card receivables
Total noncurrent liabilities
Shareholders’ investment
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 669,292,929 shares
issued and outstanding at January 28, 2012; 704,038,218 shares issued and outstanding at
January 29, 2011.
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or
outstanding at January 28, 2012 or January 29, 2011. (Financial Position.)
Income Statement
2011
$68,466
2010
$65,786
2009
$63,435
1,399
1,604
1,922
Total revenues
69,865
67,390
65,357
Cost of sales
47,860
45,725
44,062
Selling, general and administrative expenses
14,106
13,469
13,078
446
860
1,521
Depreciation and amortization
2,131
2,084
2,023
Earnings before interest expense and income taxes
5,322
5,252
4,673
72
83
97
797
677
707
(3)
(3)
(3)
866
757
801
Earnings before income taxes
4,456
4,495
3,872
Provision for income taxes
1,527
1,575
1,384
$2,929
$2,920
$2,488
Basic earnings per share
$4.31
$4.03
$3.31
Diluted earnings per share
$4.28
$4.00
$3.30
Sales
Credit card revenues
Credit card expenses
Net interest expense
Nonrecourse debt collateralized by credit card
receivables
Other interest expense
Interest income
Net interest expense
Net earnings
(Financial Position.)
Cash Flows
2011
2010
2009
$2,929
$2,920
$2,488
Depreciation and amortization
2,131
2,084
2,023
Share-based compensation expense
90
109
103
Deferred income taxes
371
445
364
Bad debt expense
154
528
1,185
Non-cash (gains)/losses and other, net
22
(145)
143
Accounts receivable originated at Target
(187)
(78)
(57)
Inventory
(322)
(417)
(474)
Other current assets
(150)
(124)
(129)
Other noncurrent assets
43
(212)
(114)
Accounts payable
232
115
174
Operating activities
Net earnings
Reconciliation to cash flow
Changes in operating accounts:
2011
2010
2009
Accrued and other current liabilities
218
149
257
Other noncurrent liabilities
(97)
(103)
(82)
5,434
5,271
5,881
Expenditures for property and equipment
(4,368)
(2,129)
(1,729)
Proceeds from disposal of property and equipment
37
69
33
Change in accounts receivable originated at third parties
259
363
(10)
Other investments
(108)
(47)
3
(4,180)
(1,744)
(1,703)
Additions to short-term debt
1,500
—
—
Additions to long-term debt
1,994
1,011
—
Reductions of long-term debt
(3,125)
(2,259)
(1,970)
Dividends paid
(750)
(609)
(496)
Repurchase of stock
(1,842)
(2,452)
(423)
Stock option exercises and related tax benefit
89
294
47
Other
(6)
—
—
Cash flow required for financing activities
(2,140)
(4,015)
(2,842)
Effect of exchange rate changes on cash and cash equivalents
(32)
—
—
Net increase (decrease) in cash and cash equivalents
(918)
(488)
1,336
Cash and cash equivalents at beginning of period
1,712
2,200
864
Cash and cash equivalents at end of period
$794
$1,712
$2,200
Cash flow provided by operations
Investing activities
Cash flow required for investing activities
Financing activities
The financial statements above are from the past two to three years. When expanding a
company there are many things to consider. First of all, a company should look at their
financials and go through some of the ratios used for financial analysis.
Current Ratio: 16,449/14,287=1.15
This ratio shows that there are more current assets than current liabilities so we know that
the company is able to cover their short-term expenses.
Debt to Equity: 30,809/15,821=1.95
This is a relatively good number for this ratio. If this number was too high it would suggest
that the company relies on the funds provided by their creditors. A heavy reliance on
creditors increases the risk that the company may not be able to meet its financial
obligations during downturn or expansion.
Net Profit Margin: 2,929/5,434=.54
This ratio shows how much of every sales dollar generated is profit.
Looking over these financials, the cash and receivables have decreased from the past year
and the liabilities and debt have gone up. The company’s sales and revenues have continued
to increase but so have the cost of sales and the SGA expenses. Although the company is
profitable, they are not increasing at a very high rate.
Industry Outlook
Target Corporations Competitors include Wal-Mart, Sears, Costco Wholesale, Macy’s, and
Dollar General. There are roughly 1,700 Target stores in the United States, this compares to
their competitors having roughly: Wal-Mart - 8,900, Sears – 2,200, Costco – 500, Macy’s –
800, Dollar General – 10,000.
Each of these companies sells the same kind of products, the quality and store brands range
along with the prices. The current economic conditions have created a fundamental shift in
shopping behavior as consumers seek ways to stretch their dollars and pull back on their
purchases. What the directors of Target need to keep in mind is where their competitors are
located and what their prices are in those locations. In order for them to compete they need
to offer the same, if not lower, prices than their competitors.
It is important to determine the objectives of their competition. Some things to look into are
their current profitability, market share growth, cash flow, technological leadership, service
leadership, and other goals. If Target can compare with their competitors in these areas, they
will more than likely be just as well off as them.
Summary
In my opinion, Target has plenty of resources to expand their operations in 2014. Although
their sales figures and receivables aren’t necessarily rising at extreme rates, they are making
a profit each year, their current assets cover their current liabilities, and I feel that if they
were to take out a loan to help them in paying for the expansion, they would have the ability
to pay back that loan. In analyzing the expansion of Target stores, I set up a small SWOT
analysis to look over.
Strengths
1. Brand equity
2. Design layout / store cleanliness
3. One-stop-shopping experience
4. Ability to meet demand
Weaknesses (need to update)
1. Target.com
2. Signage
3. Meeting fashion trends
Opportunities
1. Target.com
2. Food offerings
3. Connecting with the community
Threats
1. Difficulty adapting to new areas
2. Legal / political constraints in areas
3. Integration into new communities
4. Quickly changing trends
5. Competition
To successfully enter into different markets, Target must leverage its existing strengths and
opportunities. Given Target’s strong brand recognition and reputation for offering quality
goods at affordable prices, Target’s brand equity can easily transfer into many markets.
Target’s ability to meet consumer needs by offering a one-stop-shopping experience through
a variety of product mixes and services can be tailored for the consumers. Additionally,
Target.com serves as a strong resource that could be enhanced to connect the consumer’s instore shopping experience with on-line offerings, thereby increasing interaction between
stores and the website. The diversity and needs of many communities also presents
opportunities for Target to engage in corporate social responsibility (CSR) initiatives and
increase its interactions with local customers.
The majority of Target stores are approximately 130,000 square feet in size. This could
make finding adequate buildings and tolerable real estate costs for this size of a store a
challenge when entering some areas. In addition, Target’s struggling fashion lines may
continue to underperform in the new area’s markets, as fickle consumers tend to follow
quickly changing trends that could be difficult for a mass-merchandiser to follow. Target
must also be wary of its competition in these markets. As many areas are becoming
saturated with big box retailers, many of Target’s competitors have begun to expand into
those same areas. Thus, Target may experience growing local competition in addition to
those stores in areas which already actively serve consumers (Target, Wal-Mart And
Costco: Retail's Competitive Environment).
In conclusion, Target’s corporate leaders must analyze if they are able to expand their stores
into new areas and they must research which of their competitors are already located in
those areas. In my opinion, they are financially capable to expand their operations in 2014.
They can start their planning and preparations right now and by 2014 they should have all of
their problems worked out. The company can only benefit from opening new stores across
the United States.
Works Cited
"Financial Position." Target : Investors : Annual Reports : 2011. N.p., 28 Jan. 2012. Web.
03 Dec. 2012. <https://corporate.target.com/annual- reports/2011/index.
aspx?contentId=WCMP04-061688>.
"Target through the Years." Target through the Years. N.p., n.d. Web. 03 Dec. 2012.
<https://corporate.target.com/about/history/Target-through-the-years>.
"Target, Wal-Mart And Costco: Retail's Competitive Environment" Target, Wal-Mart And
Costco: Retail's Competitive Environment - Seeking Alpha. N.p., 12 Oct. 2011.
Web. 3 Dec. 2012. <http://seekingalpha.com/article/298995-target-wal-mart-andcostco-retail-s-competitive-environment>.