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Evaluating Target Corporation's Annual Report

I need help with the following assignment. You can go to www.annualreports.com to retrieve Target's '06 and '07 reports

Prepare a 1,750- to 2,100-word paper,that includes performance ratios based on the company's last two annual reports and data available on the company's Web site.

o Compute the eight ratios listed below for two consecutive years. Discuss their significance for management and compare them to industry averages.

? Current Ratio
? Quick Ratio
? Inventory Turnover Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Sales to Inventory)

Debt Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Total Liabilities to Net Worth)

? Net Profit Margin Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Sales)
? ROI (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Assets)
? ROE (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Net)
? Price-to-Earnings Ratio (P/E) Ratio

o Analyze the company's working capital management. Explain why the company's operating and cash cycles are currently optimized. If you think they are not optimized, explain why.

o Based on the company's financial statements, list the long-term debt held by the corporation, maturity dates and yield to maturity. List the types of stock issued by the company, the stocks' current selling price, and the 52-week average selling price.

o Compute the weighted average cost of capital (WACC) for both years and discuss your findings.

o Write a brief analysis that summarizes the data you've gathered throughout theweeks and evaluates how your company compares to industry averages.

o Write your recommendations on whether as an investor you should buy this
company's stock and why.

Solution Preview

o Compute the eight ratios listed below for two consecutive years. Discuss their significance for management and compare them to industry averages.
? Current Ratio
? Quick Ratio
? Inventory Turnover Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Sales to Inventory)
Debt Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Total Liabilities to Net Worth)
? Net Profit Margin Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Sales)
? ROI (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Assets)
? ROE (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Net)
? Price-to-Earnings Ratio (P/E) Ratio
All the computations are done in the attached file. I will give the interpretation and explanation here.
Financial Analysis- Liquidity and Solvency

2008 2007 Industry ratios
a. Current Ratio 1.60 1.32 1.52
CURRENTASSETS/CURRENT LIABILITIES

b. Quick ratio 1.03 0.76 0.83
Liquid assets/Current Liabilities
Liquid assets=Current Assets-Inventory-Prepaid expenses

h Debt ratio 1.91 1.39
Total Liabilities/Net Worth

Current ratio measures the liquidity position of the organization. It indicates the ability to pay the short term obligations of the organization. It is computed by Current Assets/Current Liabilities.
The other prominent liquidity ratio is quick ratio which measures the near term liquidity of the organization. It is computed by Quick Assets/Current Liabilities. This is related to the current ratio as it also tests the liquidity of the organization but for a shorter period. As per Investopedia "The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash."
Liquidity position of Target is better than the industry as we see in the above table and it has improved in the current year. Still it is below the ideal current ratio of 2:1and quick ratio of 1:1.
This measures the long term solvency of the organization. Lower debt equity ratio indicates lower financial risk. Bank will prefer the organization to have lower debt equity ratio. Target's debt ...

Solution Summary

Response provides steps to evaluate Target Corporation's Annual Report and covers ratio analysis, cost of capital and working capital management.

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