Karen Hanschke
Target Annual Report
ANNUAL REPORT – TARGET (TGT)
Target is a convenient discount retail store which sells general merchandise. This business is
traded publicly on the New York Stock Exchange, with the symbol TGT. The closing price of
Target stock was $56.33 with a dividend of $1.00, and a dividend-yield percentage of 1.80%
Target is lead by Gregg W. Steinhafel, their chief executive officer. Target’s home office is
located at 1000 Nicollet Mall Minneapolis, Minnesota, yet their stores now span across the entire
United States. This company’s inventory includes items from the following categories;
household essentials, apparel and accessories, home furnishings and décor, food, and pet
supplies. Important information and great online shopping can be found at the company’s web
address, www.target.com.
Target Corporation relied on the employees of Ernst & Young LLP to examine their annual
report for the period ending January 30th, 2010. Roxanne Aultin, Richard Kovacevich, Mary
Minnick, and Derica Rice worked together to audit Target’s financial statements. The
management of Target is responsible with providing financial records that ethically disclose the
fiscal history of the company, as well as follow the generally accepted accounting principles.
However, it is the duty of the audit committee to provide their honest opinion of the statements.
After a thorough dissection of a corporation’s 10k, an independent committee will offer a
“qualified” or “unqualified” opinion. Ernst & Young gave Target’s annual report an unqualified
opinion. This means that the report was free from material deception, provided accurate
disclosure, followed proper accounting procedures, sustained internal control, and agreed with
management’s estimates. The auditors found a truthful depiction of finances in Target’s 10k
report.
In the past year, Target has innovated 100 stores with their PFresh design. The PFresh design is a
“fresh approach” to a new layout of accessibility within stores. This style incorporates an
enlarged food section with frozen foods and a superior variety of dry foods. For the future,
Target intends on adding the PFresh design into 350 new stores. The company also plans on
enhancing home, beauty, video game, electronic, jewelry, and shoe sections. Target proposes
new programs which will aid store employees and their families, taking an interest in the people
who work for the company. Future plans illustrate a concern for the environment, as they
promise to improve fixtures, lighting, presentation, and merchandising. Lastly, mobile
capabilities and solutions will be offered to customers. Through this feature, shopping at any
location will be possible 24/7.
Target’s income statement follows the multi-step format. Operating revenues and expenses are
separated from non-operating activities. The income statement also includes multiple
subcategories before ultimately arriving at net earnings.
Gross Profit = Net Sales - Gross Profit
2009: $19,373 = 63,435 – 44,062
(30.5%)
2008: $18,727 = 62,884 – 44,157
(29.8%)
Assets =
Liabilities + Stockholders Equity
44,533 = 29,186
+ 15,347 (2009)
44,106 = 30,394
+ 13,712 (2008)
Cash flows from operations are greater than the net income from the past two years. The
cash outflow for 2009 and 2008 was $5,881 and $4430 respectively. However, the net incomes
were only $2488 and $2214. Expenditures for property and equipment totaled to $1729 in 2009.
Cash increased from 2008 to 2009, ($864 and $2200) with profits of $1336.
Target’s significant accounting polices focus on organization, consolidation, use of
estimates, fiscal year, and reclassifications. Organization breaks down into two segments, retain
and the Target credit card. The use of estimates focuses on corresponding with GAAP. Target’s
fiscal year does not correlate with the calendar year, but is always 52 weeks long. The last day of
each accounting period is the Saturday closest to January 31st. This past accounting period ended
the year on January 30, 2010. Reclassification is efficient within the Target principles by
allowing management to conform previous years to the current accounting standard. Most
revenues are recorded at the point of sale, except gift card sales, which are recorded upon
redemption of the card’s amount. Inventory follows LIFO, last in first out. Target typically pays
their vendors once the product has been purchased. When recording property and equipment, the
straight line depreciation method is computed. Property and equipment is documented at cost,
with depreciation subtracted out. Through abiding by the previous concepts, Target maintains
their finances and practices ethical procedures.
Tests of Profitability
Return on Average Owners’ Equity
1.
15347+13712
2
2488
2.
14529.5
a. 3. ROE= 17.1% (.1712)
Return on Average Total Assets
1.
44533+44106
2
2.
2488+801(.643)
44319.5
a. 3. ROA=6.8% (.06775)
Financial Leverage
1. %17.1 - %6.8=10.3%
a. FL=%10.3
Earnings per Share
1.
2488
=3.308
752
a.
EPS=3.31
Quality of Income
1.
5881
= 2.363
2488
4430
2. 2214 = 2.000
a. QOI-2009=2.36
2008=2.00
Profit Margin
1.
2488
2214
63435
=.039221 2. 62884 =.035207
a. PM-2009=3.9%
2008=3.5%
Average Fixed Asset Turnover
1.
25280+25756
2
=25518 2.
63465
=2.485
25518
a. AFAT=2.5 (2.485)
Cash Ratio
1.
2200
11327
= .19422
864
2.
10512
=.08219
a. 2009= .19 to 1. 2008= .08 to 1.
Current Ratio
1.
18424
17488
=1.626 2. 10512 =1.663
11327
a. 2009 = 1.63 to 1. 2008= 1.66 to 1.
Receivable Turnover Ratio
1.
6966+8084
2
=7525 2.
63435
7525
=8.429
a. RT=8.4 times
Inventory Turnover Ratio
1.
7179+6705
2
= 6942
a. IT=6.3 times.
2.
44062
6942
=6.347
Time Interest Ratio
1.
2488+801+1384
801
=5.833
2.
a. TI-2009= 5.8 times
2214+866+1322
866
=5.083
2008=5.1 times
Cash Coverage
1.
5881+805+1040
805
=9.597 2.
4430+873+1399
a. CC-2009=9.6 times
873
=7.676
2008=7.7 times
Debt-to-Equity
1.
29186
15347
=1.901
30394
2. 13712 =2.216
a. DTE-2009= 1.90
2008=2.22
Price/Earnings
1.
56.33
3.81
=14.7847
a. P/E= 14.8%
Dividend Yield
1.
1.00
56.33
= .0177
a. DY = 1.80%
After researching the industry standards within retail, I do not believe I would invest in
Target’s stock. To start off, I would not be able to purchase many at the price of $56.33 a share.
The company does not appear to have substantial growth year to year, and therefore would not
yield a high profit, despite the stability of the corporation. Out of 11 companies on
www.reuters.com, Target placed 9th among the companies in analyst recommendations. Being a
person with little knowledge of the stock market, I am highly wary of investing in a business that
places so lowly on the analysts’ scale. Walmart’s dividend-yield percentage is 2.30% vs Target’s
1.80%, and had a positive 11 point change in comparison to Target’s negative 3 points. This
demonstrates the fact that Target’s leading competitor is yielding higher results. In my opinion,
Target has a low ending balance of cash and cash equivalents. If I were to purchase shares in a
company, I would prefer to see higher inflows and lower outflows from activities. I would like to
know that my company pays generous dividends, and has enough equity to provide their
stockholders a profit. Ultimately, after reviewing the information within Target’s annual report,
my decision would be to invest elsewhere.
Sources
Reuters.com. Retail - Discount Stores. Retrieved 29 November 2010 from reuters.com:
http://www.reuters.com/sectors/industries/overview?industryCode=101.
Finance Yahoo. 29 Nov. 2010. Yahoo. Retrieved 29 Nov. 2010 <http://finance.yahoo.com/
q?s=tgt&ql=0>.