Introduction
Target Corporation, commonly referred to as Target, remains as one of the notable business entities operating within the United States and is considered as the eighth-largest department store in the country (Alexei, 2012). The company has been operating since the early 1900s and currently operates more than 1,800 stores in different states within the country. The focus of this report is to embark on an in-depth analysis of the company's SEC 10-K Annual Report for the fiscal year ended February 3, 2018. Specifically, the report will seek to examine how the company is from a financial perspective with the focus being towards reflecting on a generalized position held by the company. The report will reflect on Target's income statement, balance sheet, statement of cash flows, and provide an in-depth analysis of the company’s financial position based on its financial report.
Company Background
Target Corporation was founded in June 1902 while named Goodfellow Dry Goods before it changed its name to Dayton's Dry Goods Company. After operating for seven years, the company later changed its name to Dayton Company in 1910, which served as the overall beginning of the departmental store in the United States. The company then opened its first Target Store within Roseville, Minnesota in 1962 with the focus being towards operating as departmental store focusing on providing a wide array of needs for the consumers. In the 1970s and 1980s, Target experienced a significant rise in demand for its products, which played a critical role in boosting its capacity towards expansion. According to the financial report released on February 3, 2018, Target operates 1,822 stores within the United States, which serves as a clear indication of the extent to which the company is growing.
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Discussion on Income Statement
An analysis of the income statement of Target presents an indication of improved financial performance within the company. The income statement shows that the company experienced an improvement in its financial position in 2016, which was experienced in the second quarter of the given year. Based on the income statement, the Company’s income included $352 million, which was considered discrete tax. The discrete tax presented within the income statement of the company is associated with the Job Act and the Tax cuts outlined with the company. A review of the income statement of Target Company indicates that the company experiences an increase in rental income. The increase in the rental income is a significant aspect that helps in boosting the financial performance of the company. The income plays a critical role in ensuring that the company is in a better financial position during the following fiscal years.
Discussion on Balance Sheet
A review of the balance sheet of Target Company presents various critical aspects of considerations that are relevant in understanding the financial position of the company. A significant element of consideration based on the balance sheet of the company entails the increase of the company's assets by a margin of approximately 19% within the given financial year. The analysis indicates that the total assets of the company were $39 billion as of February 2018, which is an indicator of a significant increase in the Company's assets. The important assets mentioned within the balance sheet include plant and machinery, real estate, and other current assets that include cash and inventory. The balance sheet also provides an indication that the total liabilities of the company have increased significantly to approximately $27.29 billion. The liabilities include loans from various financial institutions, which have had a significant impact on the financial performance of the company.
Discussion on Statements of Cash Flow
The analysis of the statement of cash flow of the company indicates that the company is financially stable. The financial stability of the company is presented based on the cash at hand balance, which is reported as $2.64 billion. Another critical aspect presented within the cash flow statement entails the generation of positive value, which is based on the operations undertaken by the company to promote key business activities. The operations generated approximately $6.92 billion in 2017, which is an indicated of the positive value.
On the other hand, cash investment within the company was a major problem, which led to the company experiencing a $-3.08 billion in the stock value. The issue presents a major challenge for the company considering the negative standing regarding the stock value. Additionally, the company experiences a critical issue concerning cash flow considering the cash flow between the creditors, and the owners were approximately $-3.72 billion.
Ratio Analysis
One of the critical aspects to consider when evaluating a company's financial position, one of the key areas to consider is the ratio analysis, which will help towards determining whether the financial position can be justified from multiple perspectives. In the case of Target, it is clear from the discussions above that it has been able to maintain a structured financial position with the sole intention being towards maximizing on its current situation. However, it is vital to undertake a ratio analysis with the aim of justifying whether indeed the company can maintain that position. The expectation of this is that it will help towards advancing an in-depth position on the company's financial report. Regarding Target's ratio analysis, the focus will be on analysis of the company's current ratio, accounts receivables turnover ratio, return on equity ratio, and debt to equity ratio.
Current Ratio
The current ratio is calculated by dividing the Total Current Assets by the Total Current Liabilities, which will help towards determining the company’s liquidity position. The current ratio plays a critical role in determining how the company can operate about its financial capacity. In the case of Target, the current ratio for the company is 0.83, which occurs after using the formula that has been presented. From the analysis, one of the key factors to note is that this suggests that Target is not in a favorable financial position, as it may experience some form of challenges in trying to meet some of its financial obligations. However, the company may consider its approach towards the long-term prospects, which will ensure that it can build on its capacity to meet some of its current obligations.
Accounts Receivables Turnover Ratio
The calculation of the accounts receivable turnover ratio focuses on dividing the net value of the credit for a company within a specific period by the average accounts receivable for the company within the same period. The focus for having to evaluate this ratio seeks to determine how efficient a company uses its assets as part of meeting some of its set out financial obligations. From the financial statements, Target’s account receivable ratio stands at a margin of 1.45 coming into the fiscal year 2018. That serves as an indication that the company has been working hard towards advancing overall capacity for it to build its asset position within the consumer market. The ratio suggests that indeed Target was in a much viable position through which to maximize its generalized capacity to meet set out market standards.
Return on Equity Ratio
The yield on equity ratio is calculated as the net income that can be attributed to some of the common stockholders in a company divided by the total stockholder's equity within the company. From the financial report for Target, the company has a return on equity ratio of 31% (pre-tax) and 25% (after tax). The return on investment recorded is a slight drop from that of 2016 during which time the company has a return on equity ratio is 36% (pre-tax). That serves as a clear indication of the fact that indeed the company is in a positive position through which to ensure that it can guarantee a return on investment for its investors.
Debt to Equity Ratio
The debt to equity ratio is calculated by dividing the company's total liabilities by its shareholders' equity, which will seek to determine whether indeed the company can meet its current financial obligations. From the calculations, Target's debt to equity ratio is at 1.05, as of February 3, 2018 (Target Corporation, 2018). When compared to the debt to equity ratio that the company has recorded within the past ten years, one of the key aspects to note is that this is relatively low. Consequently, this means that the company is focusing much of its efforts towards minimizing its debts while engaging in aggressive growth through other modes of investment. That places the company in a somewhat effective financial position, as it means that it would be in an active position through which to meet some of its financial expectations.
Discussions
From the ratio analysis, as has been undertaken above, one of the critical factors to consider is that it creates a rather proactive position through which the company can justify its generalized projection about its financials. Additionally, it becomes evident that the company is in a rather effective position through which to advance overall expectations in meeting some of its critical financial obligations. Target, as a corporation, find itself in a situation where it is expected to build on its financial position by seeking funding from different forms of investment. That means that the company would be in a rather active position through which to ensure that it maximizes on the expected outcomes aimed at improving its outcomes moving into the future.
Horizontal Analysis
| Values in 000's | ||||
| Account | 2018 | 2017 | Difference $ | Difference % |
| Gross Profit | $20,754,000 | $20,350,000 | $404,000 | 1.98% |
| Net Income | $2,934,000 | $2,737,000 | $197000 | 7.19% |
Comments
Based on an analysis of the income statement, Target company experienced an increase in the gross profit in the financial year 2018 amounting to $20.754 billion which was an increase from $20.35 billion in 2017 (Target Corporation, 2018). The increase in the gross profit within the company is attributed to the rise in the total revenue obtained by the company in 2018. Additionally, the company experienced a significant increase of 7.18% in the total net income, which is an indicator of improved financial performance within the company. The increase is attributed to the increased sales and profit within the company, which helps in boosting the overall net income.
| Values in 000's | ||||
| Account | 2018 | 2017 | Difference $ | Difference % |
| Total Assets | $38,999,000 | $37,431,000 | $1568000 | 4.2% |
| Total Liabilities | $27,290,000 | $26,478,000 | $812,000 | 3.1% |
Comments
The two main aspects of consideration within the balance sheet of Target Company is the total assets and total liabilities, as they help in portraying the financial position of the company. The total assets of the company experienced a significant increase of 4.2% from $37.431 billion in 2017 (Target Corporation, 2018). The increase in the total assets of the company is attributed to the investments made by the company to increase the current assets, which is an aspect that focused on improving the inventory and cash. Additionally, the company capitalized on enhancing long-term assets by making long-term investments thus increasing the total assets. On the other hand, the company experienced an increase in total liabilities from $26.478 billion in 2017 to $27.29 billion in 2018. The company attributes the growth to a rise in the amounts payable to meet various financial needs of the company.
Vertical Analysis
Target Corporation Income Statement
| 2018 (Values in 000’s) | 2017 (Values in 000’s) | |
| Total Revenue | 71,879,000 | 69,495,000 |
| Cost of Revenue | 51,125,000 | 49,145,000 |
| Gross Profit | 20,754,000 | 20,350,000 |
| Sales, General, and Administration | 14,248,000 | 13,356,000 |
| Other Operating Items | 2,194,000 | 2,025,000 |
| Operating Income | 4,312,000 | 4,969,000 |
| Net Income | 2,934,000 | 2,737,000 |
Income Statement for 2017 and 2018
| 2018 | 2017 | |
| Total Revenue | 100% | 100% |
| Cost of Revenue | 71.13% | 70.72% |
| Gross Profit | 28.87% | 29.28% |
| Sales, General, and Administration | 19.82% | 19.23% |
| Other Operating Items | 3.05% | 2,91% |
| Operating Income | 5.99% | 7.15% |
| Net Income | 4.08% | 3.94% |
Vertical Analysis for 2017 and 2018
Comments
From the vertical analysis presented above, it is clear that the net income percentage between the financial years 2016 and 2017 reduced by a margin of approximately 0.14%, which is somewhat significant while indeed the company seeks to build itself as being financially stable. The vertical analysis suggests that the company is experiencing some form of challenge in terms of its capacity towards delivering on set out financial obligations, which affects its overall ability to deliver on some of its duties.
Conclusion
In summary, Target Corporation, commonly referred to as Target, remains as one of the notable business entities operating within the United States. Target Corporation was founded in June 1902 while named Goodfellow Dry Goods before it changed its name to Dayton's Dry Goods Company. The income statement shows that the company experienced an improvement in its financial position in 2016, which was experienced in the second quarter of the given year. A significant aspect of consideration based on the balance sheet of the company entails the increase of the company’s assets by a margin of approximately 19% within the given financial year. The financial stability of the company is presented based on the cash at hand balance, which is indicated as $2.64 billion. The current ratio for the company is 0.83. From the financial report for Target, the company has a return on equity ratio of 31% (pre-tax) and 25% (after tax). Target’s debt to equity ratio is at 1.05, as of February 3, 2018.
References
Alexei, S. (2012). Economic value added (EVA)–main indicator in measuring the value creation of the target Corporation inc. International Journal of Research and Reviews in Applied Sciences , 12 (1).
Target Corporation. (2018). Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934: For the fiscal year ended February 3, 2018 . Retrieved from https://www.sec.gov/Archives/edgar/data/27419/000002741918000010/tgt-20180203x10k.htm
