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  1. Perform your ratio analysis on Target:
    1. A good place to start would be to perform a complete DuPont analysis on Target. The DuPont analysis might provide guidance as to what particular areas of the company should be examined next and what ratios should be calculated. Be sure to include ratios that cover the following areas:
  1. Profitability
  2. Debt Management
  3. Liquidity
  4. Asset Management
  5. Market Value
  1. In addition to the DuPont analysis ratios, be sure to present and discuss at least six relevant ratios that may best assess the Target’s performance.
  2. Using an online database, such as com or a similar database, capture the ratio averages for your company’s industry to evaluate Target’s performance.
  3. Provide an analysis that compares Target’s ratios to the industry standards.  There is no need to explain the purpose of the ratios. Rather, be sure to provide an interpretation of the results. This may entail some research from news sources on the company’s recent performance.
  4. Explain the financial performance of Target and compare to the following comparable companies – please use Walmart, Kroger, Costco and whole foods. Reasons the companies were selected.
  5. What data extraction strategy, process and methodology was used.
  6. A financial comparison of your company to the average of the comparator group on the following financial factors.
  1. Profitability
  2. Debt Management
  3. Liquidity
  4. Asset Management
  5. Value Creation – based on a the 3-year trend in Free
  1. Select ratios to use in each of the five categories above and explain why the ratios are being used.
  2. Lastly, collect the financial data for Target and the financial data of the four competitor companies –Walmart, Kroger, Costco and whole foods. The data can be collected from two financial data bases such as, Yahoo Finance, Lexis Nexis, Plunkett, or bizstats.com. Collect and calculate the averages of the four competitor companies.  (Please note that no ratio calculations are required for each company, the ratios should be readily available on the websites noted above. You will only need to calculate the average ratios for the four companies combined.). A brief explanation of the comparison among all the companies.
Operating Margin

The Target corporation company mainly offers merchandise at discount price to the customer from various stores located in Minnesota. The company focuses to deliver a good shopping experience to their customer, supported by their supply chain and technology. Our ability to deliver a preferred shopping experience to our guests is supported by our supply chain (Irvine Lapsley, 2016). Company operated in single segment designed to enable the customer to buy products seamless in store though various digital channels.

Solution-a

  1. Profitability:

Operating margin = EBIT/Sales

Operating margin = $4,969/$69,495

Operating margin = 64.71%

Profit margin = Net income/Sales

Profit margin = $2,737/$69,495

Profit margin = 3.94%

Return on assets (ROA) = Net income/Total assets

Return on assets (ROA) = $2,737/$40,262

Return on assets (ROA) = 6.80%

Return on equity (ROE) = Net income/Total common equity

Return on equity (ROE) = $2,737/$12,957

Return on equity (ROE) = 0.22

  1. Debt Management

Debt ratio = (Total Assets – Total Owner’s Equity)/Total assets

Debt ratio = ($40,262 - $12,975)/$40,262

Debt ratio = 0.68

Equity Multiplier = Total Assets /Total Owner’s Equity

Equity Multiplier = $40,262/$12,957

Equity Multiplier = 3.11

  • Liquidity

Current ratio = Current Asset/ Current liabilities

Current ratio = $14,130/$12,622

Current ratio = 1.12

Quick ratio = (Current assets – Inventory)/Current liabilities

Quick ratio = ($14,130 – $8,601)/$12,622

Quick ratio = 0.44

  1. Asset Management

Asset Turnover=Sales/Average Total Assets

Asset Turnover= $69,495/$38,846.5

Asset Turnover = 1.79

Inventory turnover = Cost of sales/ Average Inventory

Inventory turnover = $48,872/ ($8,309 + $8,601)/2

Inventory turnover = 5.78

Receivables turnover = Total revenue/ Average receivables

Receivables turnover = $69,495/ ($749 + $779)/2

Receivables turnover = 90.96

  1. Market Value

Price/earnings (P/E) ratio = Price per share/Earnings per share

Price/earnings (P/E) ratio = $82.28/4.62

Price/earnings (P/E) ratio = 17.81

DuPont system

ROE = Profit Margin*Total asset turnover*Equity multiplier

ROE = 3.94%*1.79*3.11

ROE = 21.93%

Solution-b

Return on Equity Analysis

The return on equity is important profitability ratio that reflects the company ability to generate the profit from its shareholders.  

The above ratio analysis shows the return on equity 0.22, this reflects that for every dollar of the shareholder equity earned $0.22.

Current Ratio Analysis

The current ratio shows the company ability to pay their short term liability. If the current ratio of the company is 2 then company short term ability is good (M Y Khan, P. K Jain, 2014). The ratio analysis shows the current ratio 1.12.

Quick Ratio Analysis

The quick ratio helps in calculating the company ability to pay their current liabilities with the help of quick assets. The ratio analysis shows the quick ratio 0.44.

Profit Margin

Inventory Turnover Analysis

The inventory turnover ratio shows the ability of the company in terms of managing their inventory. The ratio analysis shows the inventory turnover ratio 5.78.

Debt Ratio Analysis

The debt ratio shows the percentage of finance, company getting from their investors. The ratio analysis shows the inventory turnover ratio 0.68.

Receivables turnover Analysis

The receivable ratio shows the how efficient a firm using their assets. The above calculation of receivable ratio reflects that the company able to use their assets in effective manner.

Solution-c

The ratio averages for your industry to evaluate Target’s performance are as follows.

 

Target Corporation

Industry

Gross margin 

29.26%

30.48%

Operating margin 

6.46%

7.05%

Pretax margin 

5.50%

5.80%

Net Profit margin 

3.79%

3.85%

P/E Ratio 

16.39

24.59

Return on Equity 

23.85%

19.88%

Return on Assets 

6.68%

6.97%

Quick Ratio 

0.27

0.41

Current Ratio 

0.96

1.46

Asset Turnover 

1.76

1.75

Inventory Turnover 

4.78

5.55

Solution-d

The profit margin of the company is considered to be above average in comparison to the objectives. The target corporation also looking for achieves the goals of last financial year. However company is well positioned when compared to the average margin for the industry, an indication that they could either be having greater revenue or less expense (J. Van Horne,‎ Prof John M Wachowicz JR, 2015).  The company return on equity is encouraging this is an indication that the company is wise. The expenditures are greatly reduced. When it comes to the debt management, the company has undertaken a policy of 17% leverage. They seem to have taken the course that most of the other companies in the industry have taken.

The times interest earned are very appealing for the company in question. This is a clear indication that the company does not take loans that it is not able to service which is an encouraging trait. As much as there is no industry average, there is other companies that are not able to service their debts and they are disadvantaged in that they are not able to cater well for the company.

 Solution-e

Solvency Analysis

Kroger

Costco

Wal-Mart

Whole foods

Leverage Ratio

7.13

2.20

2.41

2.43

Debt Ratio

58

19.80

51.5

36

Long-Term Debt to Equity

126.99

19.77

67

48.56

Activity Analysis

Kroger

Costco

Wal-Mart

Whole foods

Asset Turnover

.30

3.40

2.44

2.30

Accounts Receivable Turnover

90.70

101.43

251.1

Inventory Turnover

12.30

9

8.6

 

DuPont ROE

NPM

TAT

EM

ROE

Kroger

5.53%

.30

2.37

.0393

Costco

1.67%

3.4

1.20

.0681

Wal-Mart

3.54%

2.4

1.53

.13

Whole foods

3.81%

1.5

2.10

.12

Solution-f

Having carried out a research on the market in general, the technology industry is one of the fastest growing in the economies of different countries worldwide. This is due to the increased globalization and use of technology. The company can benefit a lot from concentrating only on the technology industry. The insight and competition is enough to foster growth (M Y Khan, P. K Jain, 2014). The food and beverage industry does not put technology into great use. That could give them an added advantage.

The company has disregarded influence from the external environment which is not good at all, causing it to lag behind in terms of innovation and implementation of many of the new legislation and development of new products. In terms of deviation, the industry is actually performing worse than the individual company. The marketability of the company, as deducted from an online survey of the customers, needs to be worked on through means such as advertisement as it is greatly faltering.

Solution-g

  1. Establishment of cost centers: This will ensure that the company is able to monitor its expenses in a better manner which is one of the ways that profitability can be increased.
  2. Revision of the dividends payout policy: This will attract more investors when it is lucrative. Currently any additional equity would come in handy in expanding the business.
  3. Opting for long term debts instead of the short term liabilities:This helps the company to use the money that is at its disposal more wisely. Current liabilities mostly come in small amounts which end up not being helpful at all. The long term liabilities could help stabilize and even expand the business.
  4. The operations, marketing and development aspects of the company seem to be well catered for but the financial sector has been highly neglected. More effort should be put into the financial management too. Skilled and competent financial officers should be recruited to deal with the situation (M Y Khan, P. K Jain, 2014).
  5. The company has concentrated too much on the internal environment. Considering factors in the external environment will make the company more sensitive to the changes in the market and even manage a healthy competition with its competitors. 

References:

Irvine Lapsley. (2016). Financial Accountability & Management: Wiley

Van Horne,‎ Prof John M Wachowicz JR. (2015). Fundamentals of Financial Management: Prentice Hall

M Y Khan, P. K Jain. (2014). Financial Management: McGraw-Hill Education

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[Accessed 24 July 2024].

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