Target Corporations Ratio Analysis

Target Corporations Ratio AnalysisAll numbers are presented in millionsProfitability RatiosRate of Returnon Net Sales= Net IncomeNet Sales 2015 2014 2013 $ 3363$ 73785 $ 1636$ 72785 $ 1971$ 71279 4.55 % 2.25 % 2.77 % The Rate of Return on Net Sales shows the gain or loss on an investment over a specified periodof time; in other words, it is a measure of profitability. This ratio is found by dividing NetIncome by Net Sales. In this case, the greater the ratio, the better. We see that Target’s Rate ofReturn on Net Sales was at its highest in 2015, and experienced a decrease in 2014 and 2013.This means that Target has become slightly less profitable in recent years. This is a cause forconcern for the company for if they continue this trend for many years they will ultimately fail.Rate of Returnon Total Assets= Net Income+ Interest ExpenseAverage Total Assets 2015 2014 2013 $ 3363+ $ 607$ 40262+ $ 41172/2 $ 1636+$ 882$ 41172+$ 44553/2 $ 1971+ $ 1049$ 41172 9.75 % 5.87 % 7.34 % The Rate of Return on Total Assets measures a company’s earnings before interest and taxexpenses. This ratio is considered to be a good indicator of how effectively a company uses itsassets to create profit, and is found by adding Net Income and Interest Expense, then dividing by the Average Total Assets. Similar to the previous ratio, we find that Target’s experienced itshighest Rate of Return on Total Assets in 2015, and saw a slight decrease in 2014 and anotherincrease in 2013. Again, showing that the company is on a downward trend and is no longerusing its assets as effectively as it once did. Liquidity RatiosWorkingCapital=Current Assets?Current Liabilities2015 2014 2013 $ 14,130?$ 12,622 $ 13,624?$ 11,736 $ 11,573?$ 12,777 $ 1,508.00 $ 1,888.00 $ (1,204.00) Working Capital is the capital that a company uses to run its day-to-day operations (meetingshort term obligations with using current assets). It is calculated by subtracting CurrentLiabilities from Current Assets. In this case, it is important that Current Liabilities do not exceedCurrent Assets because that would mean a company is in a bad financial state. Based off of thefigures, we analyze that Target had the highest ratio in 2014 but was in a bad financial state in2013 where they reported a negative working capital.Current Ratio= Current AssetsCurrent Liabilites 2015 2014 2013 $ 14,130$ 12,622 $ 13624$ 11,736 $ 11,573$ 12,777 1.12 1.16 0.91 The Current Ratio is used to give an idea of how well a company is able to pay back its currentliabilities with its current assets. This is found by dividing Current Assets by CurrentLiabilities.A company must have a current ratio of at least 1.0 to keep up with their obligations.As shown, Target has become increasingly capable of paying their obligations each year, with asteady increase since the base year except for the year 2013. They need to work to make theircurrent ratio even higher.Acid ?test ( Quick ) Ratio= Cash?Cash EquivalentsCurrent Liabilities 2015 2014 2013 $ 4046$ 12622 $ 2210$ 11736 $ 670$ 12777 .32 .19 .05 The Acid-Test Ratio is very similar to the Current Ratio. The only difference is that the CurrentRatio includes all current assets, whereas the Acid-Test Ratio uses all current assets except forinventory. Thus, it is found by adding Cash, Short Term Investments, and Net CurrentReceivables, and then dividing that by Current Liabilities. Inventory is not used in thiscalculation because it is not as easy to turn into cash quickly if needed. Seeing that the Acid Testtrenddiffers from the trend we found with the Current Ratio, we find that a lot of Target currentassets consist of inventory. If Target were not able to sell their inventory they would barely beable to cover their current debt.Accounts Receivables Turnover= Net Credit SalesAverage Net Accounts Receivable Accounts Receivable Turnover is a ratio that measures a company’s ability to collect itsreceivables from customers every year. This is found by dividing Net Credit Sales by Average Net Accounts Receivable. Seeing that is important for companies to collect their moneys, thehigher the ratio the better (in some cases it can be too high showing unfavorable credit). Target isa merchandising company that sells direct to the consumer for cash only. Therefore they do nothave accounts receivable. Target does offer credit cards to customers, but credit cards are not thesame as accounts receivable.’ Day s Sales?Receivables= Average Net Accounts ReceivableOne Da y ‘ s Sales Days’ Sales in Receivables is a ratio that measures the average sales per day receivable in a 365day year. It is found by dividing Average Net Accounts Receivable by One Day’s Sales. Seeingthat Target does not have Accounts Receivable, they do not have days’ sales in receivables.Inventory Turnover= Cost of Goods SoldAverage Inventory 2015 2014 2013 $ 51977$ 8601+ $ 8282/ 2 $ 51,278$ 8282+8278 /2 $ 50039$ 8278 6.16 6.19 6.04 Inventory Turnover is the amount of inventory that is sold in a specified period of time; howmany times a company sells its average level of inventory during a year. It is found by dividingCost of Goods Sold by Average Inventory. Target’s Inventory turnover was highest in 2014 anddecreased slightly in 2013. Solvency RatiosDebt Ratio= Total LiabilitiesTotal Assets 2015 2014 2013 $ 12,622+14,683$ 40,262 $ 11,736 +$ 15,439$ 41172 $ 12,777+ $ 15545$ 44553 67.82 % 66 % 63.57 % The Debt Ratio shows the proportion of assets financed with debt. It is found by dividing TotalLiabilities by Total Assets, and is typically favored at lower rates because it shows loweramounts of risk. We see that Target has consistently built up more and more debt from 2013 to2015. More than half of their company is financed with debt, which must be paid back in atimely manner. It was already determined with the acid-test ratio they need to sell inventory topay their bills and from inventory turnover we know they are selling less inventory. This mightlead to a problem paying their liabilities in the future.Income¿?Interest ?Earned Ratio=¿Operations ¿Interest Expense 2015 2014 2013 $ 5530$ 607 $ 4535$ 882 $ 5170$ 1049 9.11 5.14 4.93 Times Interest Earned is a measure of a company’s ability to meet its debt obligations. This ratiois used to indicate if a company can pay its interest charges on a pretax basis with income fromoperations. It is found by dividing Income from Operations by Interest Expense. Unfortunately Target’s recent trend of being able to meet its debt obligations has gone down consistently from2015 to 2013.