TARGET CORPORATION FINANCIAL ANALYSIS AND INTERPRETATION - Essay Example

Assignment Question: Determine the working capital and current ratios for 2004, 2005, and 2006 for the Target Corporation based on the information contained in the consolidated balance sheets in Appendix A. Did Target’s working capital and current ratio increase or decrease from 2004 to 2006? Solution:Current Assets ( million $)200420052006Cash and cash equivalents22451648813Account receivables506956666194Inventory538458386254other current assets122412531445Total Current Assets139221440514706    Current Liabilities( million $)200420052006Accounts payable577962686575Accrued liabilities163321932758Income tax payable304374422Current portion of long term debt5047531362Total Current liabilities8220958811117    Working Capital570248173589Current Ratio1.691.501.

32For Target Corporation, the level of working capital and current ratio has been decreasing since 2004.The working capital has decreased from $5702 million to $3589 million while the current ratio has gone down from 1.69 to 1.32.Current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. The ratio is mainly used to give an idea of the companys ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).

The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. Target is 1.32 suggesting that it would be able to pay its debt .32 more than is owed. However, Wal-mart size require much more debt to finance it operations. Wal-Mart .85 is not the best financial position, buy it may be because the company has a longer inventory turnover than Target. Wal-Mart is by its very nature a company with huge warehouse of inventory and other current asset.

Target, on the other hand is a smaller operation.Based on the current levels of Assets and Liablities, it is recommended to invest in the company as it is expanding its inventory levels and can be believed to be on the growth trajectory in future.Asset Turnover reflects a company’s ability to use its assets to generate sales and is an important indication of operating efficiency. It tells the analyst how many dollars of sales a company generates for each dollar invested in assets. It is computed by dividing net sales by average total assets.

Particulars ( million$)200320042005Net Sales409284568251271Total Assets314163239334995Average Total Assets--31904.533694Asset turnover 1.431.52As we can see, Asset turnover ratio for Target Corporation has gone up from 1.43 to 1.52 mostly due to increase in Net Sales. It is a good indicator of the efficiency in utilization of the assets and should be viewed positively by investors when comparing Target Corporation with its competitors like Wal-Mart etc.Reference:1. http://investors.target.com/phoenix.zhtml?c=65828&p=irol-reportsAnnual