Target Financial Analysis

1. Target Financial Analysis Chanelle ChristieBaheejah LumumbaLucius MillerAnthony BecerraJessica JordanSiena Heights UniversityLDR 640 Financial Systems ManagementEric GlohrMay 21, 2014

2. Introduction • Target corporation is a retail industry that had developed its first site in Roseville Minnesota in 1962 before founding in other target corporations around the United States . Target is listed as number three in retail compared to other competitors such as Wal-Mart and Kroger and Costco who are targets main competitors. Target has expanded over time now having stores in Canada among the rest of the stores in the United States. "Target the preferred shopping destination for our guests by delivering outstanding value"(Target 2013). Target has expanded in retail over the years now having corporations in Canada and also serving our communities for years with retail integrity, a innovation for improving the target corporation based on the needs of the people.

3. The Auditors Auditors are essential for any company that is large or small or looking for ways of improvement within their organization. Target corporation uses an accounting firm known as " Ernest and Young, LLC."(Target Brands 2013) Therefore, Ernest and Young, LLC was helps with the auditing of targets financial statements. The Ernest and young accounting firm works in the accordance of the United States standard of public accounting oversight board ( Target Brands, 2013). The auditing firm for this target has been involved with the statements and cash flow operations since 2012. The accounting firm audit opinion was signed in the city of Minneapolis, MN. Ernest Young accounting company is a large company that is placed as number 10 in Americas most private companies(Forbes 2013)

4. Target brief history of the company includes: 1. The year was 1902, by George Draper located in Roseville, Minn. First opened as a dry goods store, later transformed into and retail shop for women and men. 2 Stewart K. Widdess was asked to name and define the new retail store he and his staff came up with the Target Bull’s eye logo. 3 Target now has 1763 stores in the United States and 47 in Canada. Name of the independent –external audit firm: 1. Ernst & Young LLP. The internal control over financial reporting has been issue by the Treadway commission, which includes the assessment and effectiveness of the financial reporting, prepared in accordance with accounting principles. 2. The primary and secondary SIC codes, size of the company. 3. The ticker symbol ( TGT ) common stock

5. Financial Highlights: 1 Total Revenue growth 2012, the total diluted earning per share 2 EBit 2012, growth – five year CAGR 3 Includes graphic presentation 4 Financial statement, Income statement 5 Statement of cash flows and income statement to disclose accounting methods used

6. Company and Products: Company and Products: 1 Public relations information, 2 Names of products and services 3 Management Discussion, Analysis: Indentified significant events, affecting the firm from the viewpoint of top management. 4 Innovation trends, target is looking to develop a strategic and competitive vision. Statement of Management and the report of Independent accounts: 1 The role of management presenting the opinion of financial statements. 2 The opinions of the third party auditors. 3 Review of the most recent year and balance sheet includes the total current assets, 4 Information: regarding to the stock holders equity and current liabilities,-non current liabilities. The Trademark and Patent infringement: 1 Details covering Target’s holiday credit card breach 2 Target most recent lawsuit the case is pending concerning the Destination Maternity pants. 3 Target’s commitment to brand and integrity.

7. Operating Activities New store sales generated new sales from 2012 through 2013. From 2012 to 2013 price inflation and other market changes caused prices to change, this cost is seen for Target as its cost of goods sold increased by 2.74 billion dollars According to BusinessWeek, a key factor to Target’s net income increase is in the percentage of sales devoted to SGA (Selling, General & Administrative Expense) cost from 20.67% to 21.08%.

8. Analysis of Operating Activities Inventory turnover shows a decline from 2012-2013 by .36% The increase in asset turnover for Target shows efficiency in deployment of assets for the company The return on equity (ROE) from 2012-2014 went up and down from 12.09% to 18.59%, although Target increased the return on equity from 2012 to 2013 by 6.54% it went back down to 12.14% in 2014

9. Part 6: SEC 10-k Report Most Useful Parts General Business Section – gives background information on the organization Analysis of Financial Condition – gives explanation of financial transactions affecting the financial reports Financial Reports – the actual numbers reported to the federal government How the 10-k and Annual Report Differ The SEC 10-k is provided to the Securities and Exchange Commission and is required by law The Annual Report is provided to shareholders, and gives them a brief overview of the business and its forecast

10. Part 10: Investing Activities Changes in Non-Current Assets Target is committed to expanding its operations across the country and into Canada, this attributes for the percentage increases in Buildings and Improvement, and Construction in Progress. Accounting Method Target utilizes the straight line depreciation method to account for depreciation charges. This allows the company to deduct the same amount of depreciation charges from its accounts each year. Expense and Capitalization Target expenses items such as Cost of Goods sold and Administrative Costs Target capitalizes items such as Buildings and Equipment

11. Analysis of Investing Activities Return on Total Assets ROA = 6.2% Cash Return on Assets = 11% ROA of 6.2% is a good indicator that Target is sufficiently utilizing its assets to generate a profit Segments The U.S. market makes up the majority of Target’s total assets, with the company entering the Canadian market in 2013, the losses reported are mostly due to start-up costs.

12. Debt Financing • What is debt financing? • Debt financing is defined as “When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors.” (Investopedia.com) Targets debt financing can be reviewed in their balance sheet under liabilities. • Target’s liabilities consists of the following sub-sections: • accounts payable • short/current long term debt • long term debt • other liabilities • deferred long term liability charges

13. Part 12: Debt Financing Accounts Payable • What is accounts payable? • Accounts payable is defined as “money owed by a business to its suppliers shown as a liability on a company’s balance sheet.” (Wikipedia.com) In 2014, Target accounts payable is currently listed at $11,617,000,000 and in 2013 it was listed at $11,037,000,000. Between the two years there has been an increase in the amount of $580,000,000 in accounts payable suggesting the company is making significant changes to improve its financial structure, inventories, and to improve the operational cycle in the company.

14. Debt Financing Short/current long term debt • What is short/current long term debt? • “Short-term debt includes notes payable, bank overdrafts, drawings on lines of credit, and short-term promissory notes. The portion of any long-term debt due within a year is also a short-term obligation and is recorded in the balance sheet as a short-term borrowing” (Hawawini, 2011, pp. 39). In 2014, Target short/current long term debt is currently $1,160,000,000 and in 2013 it was $2,994,000,000. Between the two years there has been a decrease of $1,834,000,000 which suggests that the company is concentrating on lowering its short-term debt to improve its debt ratio and profitability.

15. Debt Financing Long term debt • What is long term debt? • “Long-term debt is loans and financial obligations lasting over one year” (investopedia.com). In 2014, Target long-term debt was $12,622,000,000 and in 2013 it was $14,654,000,000. There was a decrease of $2,032,000,000 between the two years which suggest that the company is concentrating on lowering its long-term debt to improve its debt ratio, increase profitability, and it shows that the company finances is in good standing.

16. Debt Financing Other liabilities • What is other liabilities? • “Other liabilities consist of obligations which are not going to be paid off within a year, but are not included as a long-term liability. These liabilities are part of the total liabilities and are deemed not important enough to be identified each amount individually.” (investopedia.com) In 2014, Target other liabilities is currently $1,490,000,000 and in 2013 it was $1,609,000,000. There was a decrease of $119,000,000 which suggests that the company has made enough capital to pay off some of its debts and to improve its debt ratio.

17. Debt Financing Deferred long term liability charges • What is Deferred long-term liability charges? • “Deferred long-term liability charges are charges that are most often made up of deferred-tax liabilities that are to be paid more than one year in the future. Deferred long-term liabilities are also considered forward contract obligations like swap contracts or derivative products,” (investopedia.com) In 2014, Target deferred long-term liability charges was $1,433,000,000 and in 2013 it was $1,311,000,000. There was an increase of $122,000,000 during the two year period.

18. Part 12: Debt Financing Liabilities • What is current liabilities? • “A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.” (investopedia.com) • What is non-current liabilities? • “A business's long-term financial obligations that are not due within the present accounting year. Examples of noncurrent liabilities include long-term borrowing, bonds payable and long-term lease obligations.” (investopedia.com)

19. Part 12: Debt Financing Liabilities • The total current liabilities add up to $12,777,000,000 for 2014 and $14,031,000,000 for 2013. • The non-current liabilities add up to $15,545,000,000 for 2014 and $17,574,000,000 for 2013. • The total liabilities from 2013 to 2014 have decreased by $3,283,000,000 which implies that Targets profit margin has increase and the company is doing well.

20. Part 12: Debt Financing Other Obligations • Lease commitments • Over the next five years Target does have lease agreements for their retail locations, warehouses, distribution centers, office space, land, equipment and software that range from 309 million to 385 million per year with the agreement payable decreasing as the years progress. • Pension and Post-retirement benefit program • Target does have a Pension and Post-retirement benefit program that helps individuals to save for retirement.

21. Part 12: Debt Financing Other Obligations • Contingent liabilities • “Target recorded $61 million of pretax Data Breach-related expenses, and expected insurance proceeds of $44 million, for net expenses of $17 million ( $11 million after tax), or $0.02 per diluted share.”(edgar-online.com) • Pension and Post-retirement benefit program • Target does have a Pension and Post-retirement benefit program that helps individuals to save for retirement.

22. Part 12: Debt Financing Debt financing activities Overview Overall, the debt financing activities for Target has been moving in a positive direction. Target has paid on most of its liabilities over the past year except for deferred long-term liability charges where the company’s value has increase from the prior year. Target was still able to show positive figures from 2013 to 2014 with a decrease in total liabilities of $3,283,000,000.

23. Part 13: Equity Financing • What is equity financing? • “Owners’ equity is the difference between a firm’s assets and its liabilities.” (Hawawini, 2011, pp. 17) Targets stockholders’ equity is referenced in their balance sheet. • Target’s stockholders’ equity consists of the following sub-sections: • common stock • retained earnings • capital surplus • other stockholder equity

24. Part 13: Equity Financing Common Stock • What is common stock? • Common stock is defined as “Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company’s success through dividends and/or capital appreciation.” (investorwords.com) In 2014, Targets common stock was $53,000,000 and in 2013 the common stock was $54,000,000. From 2013 to 2014 there was a decrease in the dollar amount of 1 million in common stock. Cash dividends paid to stockholders has increased from 0.36 to 0.43 from 2013 to 2014 respectively.

25. Part 13: Equity Financing Retained Earnings • What is retained earnings? • Retained earnings is defined as “Earnings not paid out as dividends but instead reinvested in the core business or used to pay off debt.” (investorwords.com) In 2014, Targets retained earnings was $12,599,000,000 and in 2013 the retained earnings was $13,155,000,000. From 2013 to 2014 there was a decrease in the dollar amount of $556,000,000 that the company can use in their reserve.

26. Part 13: Equity Financing Capital Surplus • What is capital surplus? • Capital surplus is defined as “Equity which cannot otherwise be classified as capital stock or retained earnings. It's usually created from a stock issued at a premium over par value.” (investopedia.com) In 2014, Targets capital surplus was 4,470,000,000 and in 2013 the capital surplus was 3.925,000,000. From 2013 to 2014 there was an increase in capital surplus.

27. Part 13: Equity Financing Other stockholder equity • Other stockholder equity, Sometimes known as AOCI (Accumulated other comprehensive income), can consist of the following according to the definition on wikipedia.com: • Unrealized gains and losses on available for sale securities. • Gains and losses on derivatives held as cash flow hedges (only for effective portions). • Gains and losses resulting from translating the financial statements of foreign subsidiaries (from foreign currency to the presentation currency). • Actuarial gains and losses on defined benefit plans recognized (Minimum pension liability adjustments). • Changes in the revaluation surplus.

28. Part 13: Equity Financing Other stockholder equity In 2014, Target’s other stockholder equity was $891,000,000 and in 2013 was $576,000,000. Target had an increase of $315,000,000 from 2013 to 2014. Dividend pay ratio and Dividend yield ratio According to finance.yahoo.com, which derived it’s information from Morningstar, the dividend payout ratio for 2014 is 51%. The forward annual dividend rate is 1.72 with the forward annual dividend yield being 2.90%. The trailing annual dividend yield is 1.65 with the trailing annual dividend yield being 2.70%. The provided information indicates that the increase in the dividend payout ratio and dividend yield ratio is good standards that investors are looking for when deciding to buy more stocks or sale their current stocks.

29. Part 13: Equity Financing Equity financing activities • To briefly summarize Targets equity financing activities for the past year and beyond, dividendgrowthinvestor.com has cited the following off its reports: • Future growth would likely be focused on expanding same-store sales and renovating existing stores. • Future growth could be realized by the increased penetration of the RED Card. • The company is targeting middle-class and upper income consumers, which are more interested in quality and diversity of product offerings, rather than simply looking at the lowest prices. • It has in essence managed to differentiate itself from Wal-Mart (WMT). • The company also is on track to bring the number of stores in Canada, which could increase long-term profits. • Target Stores has a goal of earning $8/share by 2017, which would be driven by 5% sales growth in US, share repurchases, store openings in Canada, as well as square footage growth.

30. Part 13: Equity Financing Treasury stocks and stock options Currently Target is not offering treasury stocks. Target is only selling shares of its stock through a brokerage firm or through their direct investment program, Computershare Shareowner Services.

31. Part 14: Analysis of Financing Activities Financial Leverage • What is financial leverage? • Financial leverage is calculated as liabilities over equity. Financial leverage is used to make investments within the firm to improve operation. According to investopedia.com, “financial leverage is the amount of debt used to finance a firm’s assets, a firm with significantly more debt than equity is considered to be highly leveraged.” (investopedia.com) Target is considered to have average leverage, even after the wake of the data breach of late quarter 2013. Targets financial leverage for the fourth quarter of 2013 was 1.74. (csimarket.com)

32. Part 14: Analysis of Financing Activities Material changes in capital structure During the period ending Feb 1, 2014 in the cash flow statement, Target ranked up the following changes:

33. Part 14: Analysis of Financing Activities Bonds payable Target has bonds payable in the amount of $11.8 billion and according to morningstar.com, there is a number of bonds with the maturity date ranging from 2014 to 2042. Target is considered to have average leverage, even after the wake of the data breach of late quarter 2013. Targets financial leverage for the fourth quarter of 2013 was 1.74. (csimarket.com)

34. Part 14: Analysis of Financing Activities Stock outstanding market price (Information presented here was taken from http://finance.yahoo.com/q/ks?s=TGT)

35. Part 14: Analysis of Financing Activities Financial ratios • Targets Rate of return on total assets for 2014 is 4.33% and for 2013 is 6.30%. • According to csimarket.com, “In (FY 2014) Target's ROA decreased compare to previous year to 4.42 %, due to detoriation of net income -34.28 % to $1,971.00 million, from $2,999.00 million a year ago, as TGT's assets were $44,553.00 millions” (csimarket.com). • Targets Rate of return on total stockholders’ equity for 2014 is 12.09% and for 2013 is 18.63%. • According to csimarket.com, “In (FY 2014) ROE decreased compare to previous year to 12.14 %, due to detoriation of net income” (csimarket.com). • Targets Dividend payout ratio for 2014 is 53.09% and for 2013 is 24.49%. • According to csimarket.com, “Despite year on year detoriation of EPS, Target increased dividend to $1.57 and raised dividend payout ratio to 51.14%” (csimarket.com).

36. Part 14: Analysis of Financing Activities Financial ratios • Targets Times interest earned for 2014 is 5.73% and for 2013 is 9.84%. • According to csimarket.com, “Target's interest coverage ratio sequentially decreased to 5.73 a new company low. Due to increase of interest expenses.” (csimarket.com) • Targets Current ratio for 2014 is 0.9058% and for 2013 is 1.168%. • According to ycharts.com, “A current ratio of one means that book value of current assets is exactly the same as book value of current liabilities. In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations. If the ratio is too high, the company may not be efficiently using its current assets or short term financing facilities.” (ycharts.com).

37. Part 14: Analysis of Financing Activities Financial ratios • Targets Quick ratio for 2014 is 0.08% and for 2013 is 0.08%. • According to csimarket.com, ‘On the trailing twelve months basis Despite year on year decrease in Target's average Current Liabilities to $12,777 million, Quick Ratio TTM to 0.08 below company average Quick Ratio TTM. Quick Ratio TTM is the average cumulative value over the last four quarters.” (csimarket.com) • Target Debt-to-Equity ratio for 2014 is 0.88% and for 2013 is 1.12%. • According to csimarket.com, “On the trailing twelve months basis Due to repayements of liabilities of -6.8% Target decreased Total Debt to Equity TTM in the IV. Quarter to 0.88, below company's average Total Debt to Equity TTM. Total Debt to Equity TTM is the average cumulative value over the last four quarters.” (csimarket.com)

38. Conclusion After reviewing all the financial ratios to determine whether Target is a in fact a growing corporation that should be listed in the top 10. It is evident that Target corporations numbers are growing each year through performance based on the about financial and annual statements, and ratios. Therefore, there are other super centers that are list higher in rank than target which is Wal-Mart as being one of targets top competitors. based on results from 2012 and 2013 there has been improvement as the researched ratios Targets Dividend payout ratio for 2014 is 53.09% and for 2013 is 24.49%. According to csimarket.com, “Despite year on year detoriationof EPS, Target increased dividend to $1.57 and raised dividend payout ratio to 51.14%.” (csimarket.com) However , the benchmarks that the company considers is the capacity of the industry and location. Therefore, developing a supercenter like other competitors has kept target corporation in the running for top 10 industry retail performers.

39. References • Annual Financials. (2014, January 1). . Retrieved , from http://www.marketwatch.com/investing/stock/tgt/financials/balance-sheet • Annual Data. (2014, January 1). . Retrieved , from http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Ratios/Short-term-Operating-Activity • 2012 Annual Report. (2014, January 1). . Retrieved , from https://corporate.target.com/_media/TargetCorp/annualreports/content/download/pdf/Annual-Report.pdf?ext=.pdf • Cost of Goods Sold. (2014, January 1). . Retrieved , from http://www.gurufocus.com/term/COGS/TGT/Cost%2Bof%2BGoods%2BSold/Target%2BCorp • Dune, L., Matlack, C., & Riley, M. (2014, January 1). Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It. . Retrieved , from http://www.businessweek.com/articles/2014-03-13/target-missed-alarms-in-epic-hack-of-credit-card-data • Ernest & Young. (2014, January 1). . Retrieved , from http://www.forbes.com/companies/ernst-young/ • Item 8. Financial Statements and Supplementary Data. (2014, January 1). . Retrieved , from https://corporate.target.com/annual-reports/2012/10-K/10-K-part-II/Item-8-Financial-Statements-and-Supplementary-Data

40. References • Income statement. (2014, January 1). . Retrieved , from http://finance.yahoo.com/q/is?s=TGT+Income+Statement&annual • Long-Term Investment Activity Analysis. (2014, January 1). . Retrieved , from http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Ratios/Long-term-Investment-Activity • National Retail Federation. (2014, January 1). . Retrieved , from http://www.stores.org/2013/Top-100-Retailers • Profitability Analysis. (2014, January 1). . Retrieved , from http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Ratios/Profitability • http://smallbusiness.chron.com/decreasing-inventory-turnover-mean-21667.html. (2014, January 1). . Retrieved , from http://smallbusiness.chron.com/decreasing-inventory-turnover-mean-21667.html • Target Corporation. (2014, January 1). . Retrieved April 1, 2014, from http://www.marketwatch.com/investing/stock/tgt/financials • Target Corporation Competition. (2014, January 1). . Retrieved , from http://www.hoovers.com/company-information/cs/competition.Target_Corporation.d874c3aa052df19e.html