Stockholders’ EquityFinancial StartTarget Corporation was founded in 1902 by George Dayton in Minneapolis, MN. It is the second largest American discount retailer after Walmart. After working in the banking and real estate industry, he was enamored at Minneapolis’ growth opportunities and purchased land to be used as the site for the Dayton Dry Goods Company (“TGT History,” 2018). This would later become Target Inc. Dayton invested his own money into the establishment of his business, therefore the amount he invested would be considered the initial equity.
By the 1920’s Dayton’s company become a multi-million-dollar enterprise.
Quarterly October 31, 2018 Target Industry Average
Current Ratio .83 1.20
Quick Ratio .13 .77
D/E 1.10 .55
ROA 7.97% 3.77%
ROE 22.37% 9.14%
Gross Margin 29.66% 24.40%
Operating Margin 5.60% 2.88%
Net Margin 4.34% 1.97%
Looking at the current numbers, Target is doing better in most areas compared to its competitors. Currently, Target Corp has a current ratio of 0.83. It indicates that the company may have difficulty meeting its current obligations. Low values, however, do not indicate a critical problem.
If Target Corp has good long-term prospects, it may be able to borrow against those prospects to meet current obligations (“TGT,” 2018). Target Corp’s Current Portion of Long-Term Debt for the quarter that ended in Oct. 2018 was $1,535 Mil. Target Corp’s Long-Term Debt & Capital Lease Obligation for the quarter that ended in Oct. 2018 was $10,104 Mil. Target Corp’s Total Stockholders Equity for the quarter that ended in Oct. 2018 was $11,080 Mil. Target Corp’s debt to equity for the quarter that ended in Oct. 2018 was 1.10.
A high debt to equity ratio generally means that a company has been aggressive in financing its growth with debt.
This can result in volatile earnings as a result of the additional interest expense (“TGT History,” 2018). Other than that, profitability ratios as well as gross, operating, and net margin is all higher than the industry average. This is a positive sign for the business including the stakeholders. Based off of this analysis, Target is definitely investing towards the growth of the future for the business and right now current ratio and quick ratio is low due to the heavy push towards the future expansion of the business.
Dividend PolicyWhen making investment decisions, investors research a company’s dividend yield and earnings per share ratio to assess the company’s performance and determine how it compares to its competitors. Dividend yield is calculated by dividing dividends per common share with market price per common share (Wahlen, Jones, & Pagach, 2017, Chapter 16-9).
Currently dividend yield stands at 3.62%, which ranks 81% higher than the 497 companies in the global discount stores industry with a 3 year dividend growth rate that puts Target higher than 52% of the 190 companies in the global industry (“TGT,” 2018). EPS currently holds at $6.01 which is a 26.79% increase from the year prior (“EPS,” 2018). Targets last three years EPS is ranked higher than 55% of the 288 companies in the global industry. This sounds good for an investor and shareholder, but one might keep in mind how the stock market is currently doing. With how the stock market is currently performing, Target and most other companies are taking a hit. A year ago, Target Co. had a per share price of $74.96, but currently stands at $69.61 per share. That’s a 7% decrease that would earn the shareholder at negative 3.38% in returns. However, due to the positive increasing trend the last three years when it comes to profitability and growth, Target Co. is someone to strongly consider in investing.
The key objective of IAS 18 is to prescribe the accounting treatment for revenue arising from certain types of transactions and events (“IAS-18,” 2018). IAS 18 defines revenue as the gross inflow of economic benefits arising from ordinary operating activities (cash, receivables, or assets) of an entity (sale of goods, sale of services, interest, royalties, and dividend) (“IAS-18,” 2018). IAS 18 sets the parameters by stating that revenue should be measured at the fair value of consideration received. To comply with these guidelines, Target must review its financial statements as well as internal procedures.
Target revenues increased from $2,737 million in FY16 to $2,934 million in FY17 (“2017 Target Annual Report,” 2017). This represents a 7.2% increase. Sales were $71,879 million for 2017, an increase of $2,384 million or 3.4% from the prior year, due to a comparable sales increase of 1.3%, which was in part of a 1.6% increase in traffic and the extra week in 2017 and the contribution from new stores (“2017 Target Annual Report,” 2017, p. 16). Target also invested in improving their delivery methods and capabilities by purchasing shipt, which is an online same day delivery company for $500 million increasing online sales and improving customer service (“2017 Target Annual Report,” 2017).
Part of Targets unearned revenue comes in the form of gift cards. Target lists its unearned revenue as a component of its accrued and other current liabilities. Target’s gift card liability, net estimated breakage is $693 million in FY16 and $727 million in FY17 (“2017 Target Annual Report,” 2017). Any gift card that is not redeemed is referred as “breakage.” To account for gift cards, Target makes a debit to the cash account and a credit to unearned revenue. When the gift card is redeemed, Target debits the unearned revenue account and credits the sales revenue account (“2017 Target Annual Report,” 2017).
Target only recognizes the revenue from gift card sales when the customer pays for goods with their gift card. Target does not list the totals for gift card liability on the balance sheet. Instead this amount is included in ‘other current liabilities.’ Target leaves this unearned revenue unlisted on the balance sheet. However, it is listed in the section for notes to consolidated financial statements, under note 18 ‘Accrued and Other Current Liabilities'(“2017 Target Annual Report,” 2017).
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