Calculating and interpreting profitability and risk ratios in a time-series setting Target Corporation, headquartered in the United States, operates retails chains under two store concepts: Target Discount Stores and Target Superstores, Target Discount Stores offer a wide variety of clothing, household, electronics, sports toys, and entertainment products at discount prices. Target Superstores add grocery products to the typical product offerings of its Target Discount Stores. On January 31, 2008, Target Corporation operated 1,381 discount stores and 210 superstores.

Target stores attempt to differentiate themselves from competitors by pushing trend merchandising with more brand name products. Target emphasizes customer service, referring to its customers as "guests" and focusing on the theme of ‘Expect More. Pay Less." Target Corporation also attempts to differentiate itself from competitors by providing wide aisles and a less cluttered store appearance. Target offers its own credit card to customers. Target Corporation grew its number of stores from 1,397 on January 31, 2005 to 1,591 on January 31, 2008. The growth rate in sales of stores open at least two full years was 5.6% for the fiscal war ended January 31, 2006, 4.8% for the fiscal year ended January, 31, 2007, and 3.0% for the fiscal year ended January 31, 2008. The financial statements for Target Corporation for its three fiscal years ended January 31, 2006, 2007, and 2008 appear in Exhibit 6.23 (income statement), Exhibit 6.24 balance sheet, and Exhibit 6.25 statement of cash flows). Exhibit 6.26 presents financial statement ratios for Target Corporation for its Fiscal years ended January 31, 2006 and 2007.

a. Compute the amounts of the ratios listed in Exhibit 6.26 for the fiscal year ended January 31, 2008. The income tax rate applicable to interest expense deductions is 35%.

b. What are the likely reason for the changes in Target Corporation's rate of return on assets during the three-year period? Analyze the financial ratios to the maximum depth possible.

c. What are the likely reasons for the changes in Target Corporation's rate of return on common shareholders' equity during the three-year period?

d. How has the short-term liquidity risk of Target Corporation changed during the three-year period?

e. How has the long-term liquidity risk of Target Corporation changed during the three- yearperiod?

Target Corporation Comparative Income Statement (all dollar amounts in millions) (Problem 27) EXHIBIT 6.23 For the Year Ended January 31 2008 2007 2006 Sales Revenue Other Revenues S61,471 $57,678 $51,271 1,918 $63,389 1,376 1,637 Total Revenues $59,515 $52.647 Less Expenses: Cost of Goods Sold.. $41,895 $39,399 $34,927 Selling and Administrative 13,370 16,200 15,022 Interest . 669 597 490 Total $58,764 $ 4,625 $55,018 $ 4,497 S48,787 Income Before Income Taxes. $ 3,860 1,452 $ 2,408 Income Tax Expense. 1,776 1,710 $ 2,849 $ 2,787 Net Income