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Target Co. With Performance Ratios

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The response address the queries posted in 2166 words with references.
// As per the requirement of the paper, the introductory section will be discussed, which will explain about 'Target Corporation' in short and how it operates and what kind of activities take place in it. It will help in gaining knowledge about the Company. //

Introduction

Target Corporation is the second largest retail chain in the United States. Target and Super Target are the brand names of the discount stores of Target Corporation. Target Corporation provides high quality products and merchandises to the consumers. It is differentiated from its competitors by its upscale and high quality products which are offered at a reasonable price. It has 1648 stores in 47 states which are operated in a clean, spacious and guest friendly environment.

Ratios are relative figures which reflect the relationship between different variables. They enable an analyst to analyze the financial position of a company. It also helps in the comparison of the company with another firm or industry. Following are the performance ratios of the company which explain about its growth (Target Corporation Annual Report, 2007)

// After discussing about the introductory part, the next section will discuss about the significance of various ratios like current ratio, quick ratio, inventory turnover ratio, net profit margin ratio, ROI, ROE and price to earning ratio. //

Significance of Ratios

1. Current ratio -Current ratio is calculated by dividing the current assets by current liabilities. A good current ration is 2:1 which defines that the firm has to pay 2 dollars for a short term obligation of 1 dollar. It measures the short term liquidity position of the company. In the case of Target Corporation, the current ratio is 1.60 and 1.32 for two consecutive years. It defines that the company has to pay 1.60 dollars for a short term liability of 1 dollar in the year 2008. It has increased from the previous years.

This ratio also defines the efficiency of the management and the manner in which it meets with the short term obligations. The industry average is 1.48:1, which is lesser than the ratio of the company. Less risky company attracts new investment. Target Corporation is in a good situation and can be assumed to be safe from the point of view of the investors.

2. Quick ratio - It is also known as the liquidity ratio. It is the measurement of the instant debt paying ability of the business enterprise. It explains the relationship between quick current assets and current liabilities. An ideal quick ratio is 1:1. Financial position is considered to be well if the ratio is 1:1 or more. For 2008, the quick ratio of the company is 1.60:1 which explains that the financial position of the company is strong and it is able to meet the unexpected demand of the working capital. But for 2007, financial position of the company is not sound because it is less than an ideal ratio. Industry average ratio is 0.65:1, which is less than the ratio of the company. Target Corporation is performing well in comparison to the industry.

3. Inventory Turnover Ratio - It is calculated by dividing sales by the average inventory. It indicates the speed at which the inventory is sold. A low ratio signifies that the management is not able to sell the inventory at a fast rate and stores it in ...

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Statement of Cash Flows for Target

Refer to Target Corporation's financial statements (http://www.targetcorp.com/targetcorp_group/investor-relations/investor-relations.jhtml)

Target Corporation is currently seeking additional capital to expand its operations. Two companies have shown interest in providing additional capital.

Company #1 is interested in investing in the organization and, therefore, would like to have part ownership through the sale of new stock.
Company #2 is interested in providing a loan to the Target Corporation.
Both organizations need to know more about the financial stability of Target.

As an employee of Target, your supervisor needs you to write a memo in which you explain what information from the Target Corporation's financial statements will be highlighted when representatives of Target meet with each of these companies. In your memo, be sure to explain which information will be highlighted to Company #1 and which information will be highlighted to Company #2 and why. Explain any differences in the information that you have chosen to highlight.

Companies have two ways to finance their growth: equity financing or debt financing. In equity financing the company is selling stock to generate cash. What is the advantages and disadvantages of selling stock? Debt financing is taking out loans. Is there a difference in the information that a lender and an investor would want? Think back to some of the ratios that you learned about in the previous chapters, which would be of interest to the lender and which to the investor. What about the statement of cash flows, would this be useful? Again what is the advantages and disadvantages of loans? Based on your research into these two methods of financing, Explain any differences in the information that you have chosen to highlight.

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