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% 21,431.00 145.73%

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%

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% 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% 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%

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%

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

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

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

Target Corporation

Key financial ratios