Name: Date: Target Corporation Case Answers and Analysis Target Corporation (Target) operates large general merchandise and food discount stores in all of the United States, with the exception of Alaska Hawaii, and Vermont. The company also has its own credit card operations and operates a fully integrated online business, target.com. Although the online portion of target’s business is small relative to the overall size of target, sales are growing at a more rapid pace in the online business compared to the in-store sales. The company’s philosophy is to offer their customers a delightful shopping experience and their team members a preferred place to work, and to invest in the communities in which target conducts business to improve quality of life. Selected information from the 2007 form 10-k of Target Corporation is on pages 228-237. Required: 1. Analyze the firm’s financial statements and supplementary information. Your analysis should include the preparation of common-size financial statements, key financial ratios, and an evaluation of short-term liquidity, operating efficiency, capital structure and long-term solvency, profitability, and market measures. 2. Identify the strengths and weaknesses of the company. 3. What is your opinion of the investment potential and the creditworthiness of Target Corporation? Company Overview: Target Corporation (Target or ‘the company’) operates large format general merchandise and food discount stores in the US, which include Target and Super Target stores. The company offers both everyday essentials and fashionable merchandise. Target is headquartered in Minneapolis, Minnesota and employs 366,000 people. The company recorded revenues of $63,367 million in the fiscal year ended January 2008, an increase of 6.5% over 2007. The operating profit of the company was $5,272 million in the fiscal year 2008, an increase of 4% over 2007. The net profit was $2,849 million in the fiscal year 2008, an increase of 2.2% over 2007. Target Corporation Consolidated Balance Sheets and common-size Balance Sheets (In millions, except share and per share date) Period End Date 2008 02/02/2008 2007 02/03/2007 Assets Cash and Short Term Investments 2,450.00 12.96% 813 5.53% Cash & Equivalents 599 3.17% 813 5.53% Short Term Investments 1,851.00 9.79% 0 0.00% Total Receivables, Net 8,651.00 45.76% 6,757.00 45.95% Accounts Receivable - Trade, Net 8,054.00 42.60% 6,194.00 42.12% Accounts Receivable - Trade, Gross 8,624.00 45.62% 6,711.00 45.63% Provision for Doubtful Accounts -570 -3.01% -517 -3.52% Receivables - Other 597 3.16% 563 3.83% Total Inventory 6,780.00 35.86% 6,254.00 42.53% Prepaid Expenses 0 0.00% 0 0.00% Other Current Assets, Total 1,025.00 5.42% 882 6.00% Total Current Assets 18,906.00 100.00% 14,706.00 100.00% Property/Plant/Equipment, Total - Net 24,095.00 127.45% 21.

1. Name: Date:
Target Corporation Case
Answers and Analysis
Target Corporation (Target) operates large general merchandise
and food discount stores in all of the
United States, with the exception of Alaska Hawaii, and
Vermont. The company also has its own credit
card operations and operates a fully integrated online business,
target.com. Although the online portion of
target’s business is small relative to the overall size of target,
sales are growing at a more rapid pace in the
online business compared to the in-store sales. The company’s
philosophy is to offer their customers a
delightful shopping experience and their team members a
preferred place to work, and to invest in the
communities in which target conducts business to improve
quality of life. Selected information from the
2007 form 10-k of Target Corporation is on pages 228-237.
Required:

2. 1. Analyze the firm’s financial statements and supplementary
information. Your analysis should include
the preparation of common-size financial statements, key
financial ratios, and an evaluation of
short-term liquidity, operating efficiency, capital structure and
long-term solvency, profitability, and
market measures.
2. Identify the strengths and weaknesses of the company.
3. What is your opinion of the investment potential and the
creditworthiness of Target Corporation?
Company Overview:
Target Corporation (Target or ‘the company’) operates large
format general merchandise and food
discount stores in the US, which include Target and Super
Target stores. The company offers both
everyday essentials and fashionable merchandise. Target is
headquartered in Minneapolis, Minnesota
and employs 366,000 people. The company recorded revenues
of $63,367 million in the fiscal year
ended January 2008, an increase of 6.5% over 2007. The
operating profit of the company was $5,272
million in the fiscal year 2008, an increase of 4% over 2007.
The net profit was $2,849 million in the

3. fiscal year 2008, an increase of 2.2% over 2007.
Target Corporation
Consolidated Balance Sheets and common-size Balance Sheets
(In millions, except share and per share date)
Period End Date
2008
02/02/2008
2007
02/03/2007
Assets
Cash and Short Term Investments 2,450.00 12.96% 813 5.53%
Cash & Equivalents 599 3.17% 813 5.53%
Short Term Investments 1,851.00 9.79% 0 0.00%
Total Receivables, Net 8,651.00 45.76% 6,757.00 45.95%
Accounts Receivable - Trade, Net 8,054.00 42.60% 6,194.00
42.12%
Accounts Receivable - Trade, Gross 8,624.00 45.62% 6,711.00

4. 45.63%
Provision for Doubtful Accounts -570 -3.01% -517 -3.52%
Receivables - Other 597 3.16% 563 3.83%
Total Inventory 6,780.00 35.86% 6,254.00 42.53%
Prepaid Expenses 0 0.00% 0 0.00%
Other Current Assets, Total 1,025.00 5.42% 882 6.00%
Total Current Assets 18,906.00 100.00% 14,706.00 100.00%
Property/Plant/Equipment, Total - Net 24,095.00 127.45%
21,431.00 145.73%
Goodwill, Net 60 0.32% 60 0.41%
Intangibles, Net 148 0.78% 152 1.03%
Long Term Investments 0 0.00% 0 0.00%
Note Receivable - Long Term 0 0.00% 0 0.00%
Other Long Term Assets, Total 1,351.00 7.15% 1,000.00 6.80%
Other Assets, Total 0 0.00% 0 0.00%
Total Assets 44,560.00 235.69% 37,349.00 253.97%
Liabilities and Shareholders' Equity
Accounts Payable 6,721.00 35.55% 6,575.00 44.71%
Payable/Accrued 0 0.00% 0 0.00%

5. Accrued Expenses 2,109.00 11.16% 2,004.00 13.63%
Notes Payable/Short Term Debt 0 0.00% 0 0.00%
Current Port. of LT Debt/Capital Leases 1,964.00 10.39%
1,362.00 9.26%
Other Current Liabilities, Total 988 5.23% 1,176.00 8.00%
Total Current Liabilities 11,782.00 62.32% 11,117.00 75.59%
Total Long Term Debt 15,126.00 80.01% 8,675.00 58.99%
Long Term Debt 15,126.00 80.01% 8,528.00 57.99%
Capital Lease Obligations 0 0.00% 147 1.00%
Deferred Income Tax 470 2.49% 577 3.92%
Other Liabilities, Total 1,875.00 9.92% 1,347.00 9.16%
Total Liabilities 29,253.00 154.73% 21,716.00 147.67%
Common Stock 68 0.36% 72 0.49%
Additional Paid-In Capital 2,656.00 14.05% 2,387.00 16.23%
Retained Earnings (Accumulated Deficit) 12,761.00 67.50%
13,417.00 91.23%
Other Equity, Total -178 -0.94% -243 -1.65%
Total Equity 15,307.00 80.96% 15,633.00 106.30%
Total Liabilities & Shareholders’ Equity 44,560.00 235.69%

6. 37,349.00 253.97%
Target Corporation
Income statements and common-size Income statements
(In millions, except share and per share date)
Period End Date
2008
02/02/2008
2007
02/03/2007
2006
01/28/2006
Revenue 63,367.00 100.00% 59,490.00 100.00% 52,620.00
100.00%
Total Revenue 63,367.00 100.00% 59,490.00 100.00%
52,620.00 100.00%
Cost of Revenue, Total 43,766.00 69.07% 41,073.00 69.04%

7. 35,703.00 67.85%
Gross Profit 19,601.00 30.93% 18,417.00 30.96% 16,917.00
32.15%
Selling/General/Administrative
Expenses, Total
12,670.00 19.99% 11,852.00 19.92% 11,185.00 21.26%
Research & Development 0 0.00% 0 0.00% 0 0.00%
Depreciation/Amortization 1,659.00 2.62% 1,496.00 2.51%
1,409.00 2.68%
Interest Expense (Income), Net
Operating
0 0.00% 0 0.00% 0 0.00%
Unusual Expense (Income) 0 0.00% 0 0.00% 0 0.00%
Other Operating Expenses, Total 0 0.00% 0 0.00% 0 0.00%
Operating Income 4,625.00 7.30% 4,497.00 7.56% 3,860.00
7.34%
Interest Income (Expense), Net
Non-Operating
0 0.00% 0 0.00% 0 0.00%

8. Gain (Loss) on Sale of Assets 0 0.00% 0 0.00% 0 0.00%
Other, Net 0 0.00% 0 0.00% 0 0.00%
Income Before Tax 4,625.00 7.30% 4,497.00 7.56% 3,860.00
7.34%
Income Tax - Total 1,776.00 2.80% 1,710.00 2.87% 1,452.00
2.76%
Income After Tax 2,849.00 4.50% 2,787.00 4.68% 2,408.00
4.58%
Minority Interest 0 0.00% 0 0.00% 0 0.00%
Equity In Affiliates 0 0.00% 0 0.00% 0 0.00%
U.S. GAAP Adjustment 0 0.00% 0 0.00% 0 0.00%
Net Income Before Extra. Items 2,849.00 4.50% 2,787.00 4.68%
2,408.00 4.58%
Total Extraordinary Items 0 0.00% 0 0.00% 0 0.00%
Discontinued Operations 0 0.00% 0 0.00% 0 0.00%
Net Income 2,849.00 4.50% 2,787.00 4.68% 2,408.00 4.58%

10. Target Corporation
Statements of cash flows
(In millions, except share and per share date)
Period End Date
2008
02/02/2008
2007
02/03/2007
2006
01/28/2006
Net Income/Starting Line 2,849.00 2,787.00 2,408.00
Depreciation/Depletion 1,659.00 1,496.00 1,409.00
Amortization 0 0 0

11. Deferred Taxes -70 -201 -122
Non-Cash Items 634 497 579
Discontinued Operations 0 0 0
Unusual Items 28 53 70
Other Non-Cash Items 606 444 509
Changes in Working Capital -947 283 177
Accounts Receivable -602 -226 -244
Inventories -525 -431 -454
Other Assets -38 -25 -52
Accounts Payable 111 435 489
Accrued Expenses 62 389 351
Taxes Payable 0 41 70
Other Liabilities 124 100 0
Other Operating Cash Flow -79 0 17
Cash from Operating Activities 4,125.00 4,862.00 4,451.00
Capital Expenditures -4,369.00 -3,928.00 -3,388.00
Purchase of Fixed Assets -4,369.00 -3,928.00 -3,388.00

12. Other Investing Cash Flow Items, Total -1,826.00 -765 -761
Sale of Fixed Assets 95 62 58
Other Investing Cash Flow -1,921.00 -827 -819
Cash from Investing Activities -6,195.00 -4,693.00 -4,149.00
Financing Cash Flow Items -375 -5 58
Other Financing Cash Flow -375 -5 58
Total Cash Dividends Paid -442 -380 -318
Issuance (Retirement) of Stock, Net -2,267.00 -720 -1,025.00
Issuance (Retirement) of Debt, Net 6,791.00 101 386
Cash from Financing Activities 3,707.00 -1,004.00 -899
Foreign Exchange Effects 0 0 0
Net Change in Cash 1,637.00 -835 -597
Net Cash - Beginning Balance 813 1,648.00 2,245.00
Net Cash - Ending Balance 2,450.00 813 1,648.00

13. Target Corporation
Key financial ratios
Fiscal Year 2008 2007 2006
Fiscal Year End Date 3/31/09 3/31/08 3/31/07
Tests of profitability:
1.Return on equity (ROE): Net Income / Average Stockholders'
Equity 0.15 0.18 0.19
2.Return on assets (ROA): Net Income + Interest Expense (net
of tax) /
Average Total assets 0.07 0.09 0.09
3.Financial leverage percentage: Return on Equity - Return on
assets 0.08 0.10 0.09
4.Earnings per share (EPS): Net Income / Average Number of
Share of
Common Stock Outstanding 2.82 3.39 3.21
5.Quality of income: Cash Flows From Operating Activities /
Net
Income 2.00 1.45 1.74

14. 6.Profit margin: Net Income / Net Sales Revenue 0.03 0.04 0.05
7.Fixed asset turnover ratio: Net Sales Revenue / Average Net
Fixed
Assets 2.52 2.63 2.78
8.Asset turnover ratio: Net Sales Revenue / Average Total
Assets 1.47 1.55 1.64
Tests of Liquidity:
8.Cash ratio: Cash + Cash Equivalents / Current Liabilities 0.05
0.05 0.07
9.Current ratio: Current Assets / Current Liabilities 1.66 1.60
1.32
10.Quick Ratio: Quick Assets (cash, short-term investments,
accounts
receivable(net of the allowance or doubtful accounts)) / Current
Liabilities 0.95 0.94 0.68
11.Receivable turnover ratio: Net Credit Sales / Average
Inventory 9.63 9.72 9.84
12.Average Age of Receivables: Days In a Year / Receivable
Turnover
Ratio 37.89 37.54 37.10
13.Inventory turnover ratio: Cost of Goods Sold / Average
Inventory 6.79 6.72 6.79

15. 14.Average Day's Supply in inventory: Days In a Year /
Inventory
Turnover Ratio 53.77 54.35 53.73
15.Payable Turnover Ratio: Cost of Goods Sold / Average
Accounts
Payable 7.01 6.58 6.14
16.Average Age of Payables: Days In a Year / Payable Turnover
Ratio 52.07 55.44 57.07
Tests of Solvency:
17.Times interest earned: Net Income + interest Expense +
Income
Taxes Expense / Interest Expense 3.96 6.92 7.53
18.Cash coverage ratio: Cash Flows from Operating Activities
(before
interest and tax paid) / Interest Paid 4.96 6.18 8.14
19.Debt-to-equity ratio: Total Liabilities / Stockholder's Equity
2.22 1.91 1.39
Market Tests:
20. Price/earnings ratio: Current Market Price per Share /
Earnings per
Share 18.67 18.13 16.92

16. 21.Dividend yield ratio: Dividends per Share / Market Price per
Share 0.01 0.01 0.01
1. Analyze the firm’s financial statements and supplementary
information. Your analysis should
include the preparation of common-size financial statements,
key financial ratios, and an
evaluation of short-term liquidity, operating efficiency, capital
structure and long-term solvency,
profitability, and market measures. (The financial statement
analysis template can be accessed
and used at www.prenhall.com/fraser.)
1.1. Evaluation of profitability and operating efficiency:
1.1.1. Return on equity:
Return on equity reflects the simple fact that investors expect to
earn more money if they invest more
money. Target earned 0.19 in 2006, 0.18 in 2007, and 0.15 in
2008 on the owners’ investment.
Comparing 2006 to 2008, the data shows that Target’s
performance in 2008 as measured by its ROE has
declined compared to 2006. This comparison suggests that they
have been inefficient.

17. 1.1.2. Return on Assets:
Return on assets compares income to the total assets used to
earn the income. The return on assets for
Target was 0.09 in 2006, 0.09 in 2007, and 0.07 in 2008 this
decrease indicates that Target utilized its
assets inefficiently.
1.1.3. Financial leverage percentage:
Financial leverage percentage measures the advantage or
disadvantage that occurs when a company’s
return on equity differs from its return on assets. Target’s
financial leverage ratio was 0.09 in 2006, 0.10
in 2007, and 0.08 in 2008. The financial leverage ratio
increased by .01 from 2006 to 2007, which
indicated that it utilized more debt in its capital structure but
from 2007 to 2008 it decreased by .02,
which indicates that it utilized less debt in its capital structure.
1.1.4. Profit margin:
The profit margin measures the percentage of each sales dollar.
From 2006 to 2008, each dollar of
Target sales generated 5 cents of profit in 2006, 4 cents of
profit in 2007, and 3 cents of profit in 2008.
This data indicates that the operating efficiency of Target

18. became weak.
1.1.5. Fixed asset turnover ratio:
From 2006 to 2008 Target’s fixed asset turnover ratio was 2.78
in 2006, 2.63 in 2007, and 2.52 in
2008. This means that Target had no ability to effectively
utilize its fixed assets to generate revenue.
For each dollar Target invested in property, plant, and
equipment, the company was able to earn $2.78 in
2006, $2.63 in 2007, and $2.52 in 2008 in sales revenue.
1.1.6. Asset turnover ratio:
From 2006 to 2008 Target’s asset turnover ratio was 1.64 in
2006, 1.55 in 2007, and 1.47 in 2008.
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This also means that Target wasn’t able to operate more
effectively.
1.2. Evaluation of Liquidity:
1.2.1. Cash Ratio:
From 2006 to 2008, Target’s cash ratio was 7% in 2006, 5% in
2007 and 5% in 2008. The average
cash ratio during 2006 to 2008 was 5.67% that means Target has
on hand 5.67 cents of cash for each $1.

19. In the meanwhile, Target’s statement of cash flows showed that
the company generated a large amount of
cash from its operating activities. From 2006 to 2008, Target’s
cash from operating activities was $4451
millions, $4862 millions and $4125 millions. Although the
number of Target’s cash from operating
activities dropped seriously from $4862 millions in 2007 to
$4125 millions in 2008, Target still had a
strong ability to generate cash form operating activities to cover
the currently liabilities.
1.2.2. Current Ratio:
The current ratio measures the cushion of working capital that
companies maintain to allow for the
inevitable unevenness in the flow of funds through the working
capital accounts. From 2006 to 2008,
Target’s current ratio was 1.32 in 2006, 1.60 in 2007 and 1.66
in 2008. The average current ratio during
2006 to 2008 was 1.53 that means Target had $1.53 in current
assets for each $1 in current liabilities. This
ratio is very strong that gave Target a strong ability to generate
cash.
1.2.3. Quick Ratio:
The quick ratio is a measure of the safety margin hat is
available to meet a company’s current

20. liabilities. From 2006 to 2008, Target has 0.68 cents in cash and
near-cash assets for every $1 in current
liabilities in 2006, 0.94 cents in cash and near-cash assets for
every $1 in current liabilities in 2007, 0.95
cents in cash and near-cash assets for every $1 in current
liabilities in 2008. The average Quick ratio
during 2006 to 2008 was 0.86 that means Target has 0.86 cents
in cash and near-cash assets for every $1
in current liabilities. Target has a safety and good margin in the
amount of cash Target generates from its
operating activities.
1.2.4. Inventory Turnover Ratio:
Inventory turnover is a measure of both liquidity and operating
efficiency. From 2006 to 2008,
Target’s inventory was acquired and sold to customers 6.79
times during the year 2006, 6.72 times during
the year 2007, and 6.79 times during the year of 2008. During
2006 to 2008, on average, Target’s
inventory was acquired and sold to customers 6.77 times.
According to the data we know that Target’s
inventory turnover ratio kept stable in recent years. We can see
this result through the data of average

21. day’s supply in Inventory. From 2006 to 2008, Target’s average
day’s supply in inventory was 53.73 days
in 2006, 54.35 days in 2007, and 53.77 days in 2008.
1.2.5. Using ratio to analyze the operating cycle:
Fiscal Year 2008 2007 2006
Fiscal Year End Date 3/31/08 3/31/07 3/31/06
9.Average Age of Payables: Days In a Year / Payable
Turnover Ratio 52.07 55.44 57.07
7.Average Day's Supply in inventory: Days In a Year /
Inventory Turnover Ratio 91.66 91.89 90.83
5.Average Age of Receivables: Days In a Year / Receivable
Turnover Ratio 39.59 36.45 33.76
The component parts of the operating cycle help us understand
the cash needs of the company. In
2006, Target, on average, pays for its inventory 57.07 days after
it receives it. It takes, on average, 90.83
days for it to sell and for the company to collect cash from the
customer. In 2007, Target, on average, pays
for its inventory 55.44 days after it receives it. It takes, on

22. average, 91.89 days for it to sell and for the
company to collect cash from the customer. In 2008, Target, on
average, pays for its inventory 52.07 days
after it receives it. It takes, on average, 91.66 days for it to sell
and for the company to collect cash from
the customer. Therefore, Target must invest cash in its
operating activities for nearly 33.76 days in 2006,
36.45 days in 2007, and 39.59 days in 2008 between the times it
pays its vendors and the time it collects
from its customers. In conclusion, in recent years, Target had
enough liquidity, but the liquidity became
weak, so for the management of Nissan should be aware on his
liquidity strategy to keep their enough
liquidity and management efficiency.
1.3. Evaluation of capital structure and long-term solvency:
1.3.1. Times interest earned ratio:
The times interest earned ratio compares the income a company
generated in a period to its interest
obligation for the same period. From 2006 to 2008, Target
generated $7.53 in income for each $1 of
interest expense in 2006, $6.92 in income for each $1 of interest
expense in 2007 and$3.96 in income for

23. each $1 of interest expense in 2008 The ratios were decreasing
annually that indicates the secure position
for creditors became weak, and the creditors risk became
higher.
1.3.2. Cash coverage ratio:
Target’s cash coverage ratio shows that the company generated
$8.14 in cash for every $1 of interest
paid in 2006, $6.18 in cash for every $1 of interest paid in 2007
and $4.96 in cash for every $1 of interest
paid in 2008, which are not very strong coverage and the
coverage ability became weak.
1.3.3. debt-to-equity ratio:
From 2006 to 2008, for each $1 of stockholder’s equity, Target
had $1.39 worth of liabilities, $1.91
worth of liabilities and $2.22 worth of liabilities that means
Target were using more debt to operate.
1.4. Evaluation of market measures:
1.4.1. price/Earnings Ratio:
Recently, when the price of Target stock was $54.40 per share
in 2006, $61.53 per share in 2007 and

24. $52.61 per share in 2008, EPS for Target was $3.21 in 2006,
$3.39 in 2007, and $2.82 in 2008. This
indicates that Target’s stock was selling at a price that was
16.92 times its earnings per share in 2006,
18.13 times its earnings per share in 2007 and 18.67 times its
earnings per share in 2008. The P/E ratio
reflects the stock market’s assessment of a company’s future
performance. Target’s P/E ratio suggests that
the market believes that Target has the growth potential in
recent years.
1.4.2. Dividend yield ratio:
Target paid dividends of 0.01 cents per share when the market
price of its stock was $54.40 per share
in 2006, $61.53 per share in 2007 and $52.61 per share in 2008.
2. Identify the strengths and weaknesses of the company.
(www.datamonitor.com)
2.2. Strengths:
2.2.1. Robust return on assets and equity:
Target’s return on average assets (ROA) and return on average
equity (ROE) remained high in 2006
at 1.67% and 23.7%, respectively. The company's ROA and

25. ROE are significantly higher than its
competitors. For instance, Associated Banc-Corp’s ROE
declined from 17.2% in 2004 to 13.9% in 2006,
and ROA declined from 1.6% in 2004 to 1.5% in 2006. Target’s
higher return compared to its competitors
gives it a competitive advantage in attracting customers and
equity and debt investors.
(www.datamonitor.com)
2.2.2. Strong credit quality:
http://www.datamonitor.com/
Target’s credit quality remains strong. Target’s net charge-offs
for 2006 were 0.17%, which is a low
level. The allowance for loan and lease losses at December 31,
2006 was $58.5 million or 0.52% of loans
and leases outstanding. At December 31, 2006, non-performing
assets totaled $65.6 million, up by $18.3
million from the previous year end. Approximately 60% of non-
performing assets are secured by
residential real estate. Target’s secured lending strategy reduces
losses by providing a secondary source of
repayment in the event of a customer default. The company’s
strong asset quality reduces earnings

26. volatility for investors. (www.datamonitor.com)
2.2.3. Strong core banking and regulatory capital position:
In 2006, Target registered a strong growth in its core banking
(deposits and loans & leases) and
maintained a good regulatory capital position. In 2006, the
company’s loans & leases rose to $11.33
billion, a rise of 11% over 2005. Target’s deposits grew to
$9.77 billion in 2006, up by 7% over 2005. In
summary, the company’s core banking grew to $21 billion, a
rise of 9.1% over 2005. Despite the growth
in core banking activities, the company’s regulatory capital
position remained strong. Target’s tier 1
capital rose to $914 million in 2006 as compared to $864
million in 2005. The company’s total risk based
capital rose to $1,173 million in 2006 from $1,049.6 million in
2005. Consequently, the company’s
capital adequacy ratio rose to 11.10% in 2006 from 10.68% in
2005. The company’s strong core banking
and capital position implies that it is able to balance growth and
solvency. (www.datamonitor.com)
2.3. Weaknesses:

27. 2.3.1. High long-term borrowings:
Target’s long-term borrowings were $3,374.4 million during
fiscal year 2006, a year on year increase
of 34.4%. The company’s long-term borrowings equaled 245.3%
of its revenues in the fiscal year 2006.
The ratio of long term borrowings to revenues rose to 2.45 in
2006 from 2.07 in 2005. This indicates that
the company’s dependence on long term borrowings has
increased. The company's long-term debt to
equity ratio also increased to 3.27 in 2006, up from 2.51 in
2005. This is much higher than some of its
peers. The company's high indebtedness limits its ability to
undertake further financing going forward.
Moreover, it exposes the company to significant financial
risks.(www.datamonitor.com)
2.3.2. Declining ATM revenue and low growth in fees and
services charges:
Target’s ATM revenue has been declining since the fiscal year
2004. ATM revenue declined to $37.7
million in 2006, as compared to $40.73 million in 2005. During
2003-2006, ATM revenue shrunk to
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28. $37.7 million in 2006, from $42.9 million in 2004, at a negative
CAGR of 6.2%. The company’s revenue
from fees and services charges increased in 2006 by 2.9% to
$270.2 million. However, during 2004-2006,
revenue from fees and services charges shrunk by a CAGR of
1.8%. The company's fee income was
negatively affected by the change in behavior of checking
account customers. Customers now prefer
Automated Clearing House transactions and debit card
transactions instead of checks. In addition, the
accounts of certain customers were closed since they abused
their debit card spending, which negatively
affected the company's fees and service charges. Declining
ATM revenues and low growth in fees and
services charges indicate that the company is yet to control
customer defection. (www.datamonitor.com)
2.3.3. Limited geographical spread:
Target Financial operates only in the US. The company's
principal subsidiary, Target National Bank,
operates in Minnesota, Illinois, Michigan, Wisconsin, Colorado
and Indiana. The company's limited
geographic spread limits its customer base. In 2007, the US

29. economy, especially the financial services
industry, was badly affected by sub prime crisis. The average
cost of inter bank borrowing went up in
2007. The cost of borrowing is expected to remain high in 2008
as well. The company’s high reliance on
long term borrowings and the US economy could lead to lower
business growth and profits in the coming
quarters. (www.datamonitor.com)
3. What are your opinion of the investment potential and the
creditworthiness of Target
Corporation?
The company’s growth can be seen in multiple areas such as
revenue growth since the same quarter
one-year prior revenues slightly increased by .2% and good cash
flow from operations and reasonable
valuation levels, since the net operating cash flow has increased
by 35% when compared with last year.
However, we can find weakness including feeble growth in the
company’s earning per share,
generally poor debt management and poor profit margins, since
target’s earning per share has declined by
6.8% in the most recent quarter compared to the same quarter a
year ago, the debt-to-equity ratio of 1.33

30. is relatively high when compared with the industry average
suggesting a need for better debt level management. Along
with the unfavorable debt-to-equity ratio, TGT
maintains a poor quick ratio of .86, which illustrates the
inability to avoid short-term cash problems.
At Target’s current price of $39.30, investors are
http://www.datamonitor.com/
placing a positive value of $17 on its future investments. This
view is consistent with the company’s most
recent performance that reflected a growth rate of 8.0% per
year, and a return on equity of 13.6% versus a
cost of equity of 12.2%. In addition, this view is consistent with
PTR’s forecasts. As explained
previously, PTR expects TGT to grow at a rate of 6.0% per year
and to earn a return on equity of 16.7%
versus a cost of equity of 12.2%. PTR’s 2011 Price Target of
$36 is based on these forecasts and reflects
an estimated value of existing assets of $29 and a value of
future investments of $8.
According to the data analysis above we don’t think invest
money to Target is a good choice. The

31. management of Target was becoming inefficient in recent years,
and the debt of Target was becoming
higher. It means higher risk to both investors and creditors. The
management of Target should change this
situation to operate more efficiently in their business. From our
research we can determine that even
though sales increased the net income decreased representing a
decrease to the bottom line. This goes to
further prove our standpoint on not investing on Target
Corporation because of all the risk factors stated
through out this research paper.