Critique the Financial Analysis and - Research Paper Example

and 122 in Canada. The company employs over 361,000 associates in the United States (Yahoo, 2013). In the U.S. there are about 5,000 department stores with combined revenue of about $120 billion annually (Target, 2012). In the U.S. the discount department store industry is highly concentrated with the eight largest companies accounting for almost 100% of revenues. Wal-Mart and Target are leading the pack. In this industry the main factors driving demand are consumer spending related to economic outlook and population growth.

In order to remain profitable in this highly competitive industry driven by ever lower margins companies depend on efficient supply chain management, high volumes, effective merchandising and competitive pricing in order to maintain profitability. Target is following an industry trend of adding and converting major markets stores into supercenters which combine traditional general merchandise with a fully stocked grocery store to help drive store traffic, since customers spend more on groceries more than any other product category (Hoover’s First Research, 2013). 2&3) There are significant business challenges in this industry which dictate the success of its major players.

The industry is characterized by its dependence on high volumes and extremely low operating margins. In order to keep prices low the industry has a heavy dependence on imports in most of their key merchandise categories. In general terms gross margin percentages for discount department stores can be 10-20% lower than traditional department stores. Although there is also growing recent and resistance from communities that perceives giant discounters as a major threat to their local economy and small business community.

In terms of economic growth for the industry it is forecast to grow at an annual rate of 1% from 2013-2017 (Hoover’s First Research). We will analyze Target Corp. for its fiscal year ended 2/2/2013 and compare it with the industry averages in terms of overall financial performance, financial ratio analysis and investment potential. In order to gauge the company’s liquidity we will analyze the quick ratio as well as their debt to equity ratio and compare it with the industry. We will look at the inventory turnover ratio to gauge operational efficiency and inventory management compared with the industry.

In order to measure management effectiveness, shareholders returns and profitability we will analyze the price/earnings ratio, return on equity, earnings per share and net profit margin versus industry averages (Yahoo). Target Industry Average Quick Ratio .54 .50 Debt to Equity Ratio 91.53 67.6 Inventory Turnover Ratio 6.4 4.4 P/E Ratio 17.24 15.8 Return on Equity 14.84% 11.3% Earnings per Share 3.74 5.2 Net Profit Margin 4.17% 2.7 4) As one of the most successful discount department stores, Target must be extremely efficient in their operations in order to remain profitable.

Target has a slightly higher debt to equity ratio compared with industry average. The company is effectively managing its levels of financial leverage in order to increase shareholder benefits and maximize growth and stock performance. By analyzing the company's quick ratio it demonstrates that the company has maintained an above average level of liquidity to meet their short and long term liabilities as compared with